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GORRESPONOEtlTS 


IN  ALL  THE    MERCANTILE 
CENTRES  OF  THE 

UNITED   STATES. 
CANADA. 

SOUTH  AMERICA 
EUROPE. 
ASIA.  AFRICA, 

AND   POLYNESIA. 


"fegjRN  f^flNCISCO 

Of^G^ED]zQirU  (alifornia. 

Oldest  IncorporajedCowjmercwl  Bani^on  the  Pacific  (oast 

Capital  paid  up  in 

j*^      t^SANFRANCISCOGAL.U.S.A.^       GoIdI'ooooooo 


Eicliango  and  GolMons  ^^ 

ON  MOST  FAVORABLE  ^ 

TERMS. 


IHTERS  OF  CREDIT 

-ISSUED- 

AVAILABLE    IN   ALL  PARTS 
OF  THE    WORLD. 


pplusFund 

$650,000.00. 
JIvERAGE  [Resource: 
$4,356,175.94. 
Volume  of  Busiqes 

i°n887. 

$225,000,000 


K-H.  Mc.  BONALD.  Presidenf. 
:  R.  j[l .  Me  t)  0  N  A  L  D.  J  r.  Vice  Pres'k . 
F(?ANK  V.  Mc.  OONALD.  Cashier. 


DEPOSITORS 

Guaranteed  against  every  possible  loss  by  a  pro  rata 
unlimited  liability  of  shareholders. 


1^^^ 


I^VYAf^  ^ 


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•  •     •  «  . 
•  '  «  •  •■ 


PREFACE, 

In  this  work  we  have  endeavored  to  give  a  pop- 
ular history  of  banking  as  a  commercial  institution, 
and  have  paid  no  attention  to  its  theory  or  practice. 
We  have  endeavored  to  give  references  to  original 
authorities  to  assist  those  who  desire  to  go  deeper 
into    the    subject. 

[  Franklin  L.  Chase. 


Jno.  K.  Allen. 
Chicago,  May  7,  1888. 


CON  TENTS. 


Chaptku  I. 

1  I'AOE. 

'     Ancient  Hanking,  ------  5 

C^HAI'TKR    II. 
I'^arly  lianking,  ------  19 

Chaptkk  III. 
B^arly  English  Banking,  and  the  Bank  of  England,        -  -  32 

Chapter  IV. 
Modern  European  Banking,  .  -  .  -  47 

Chapter  V. 
Early  American  Banking,  -----  64 

Chapter  VI. 
The  Revolutionary  Period,  -  -  .  .  go 

Chapter  VII. 
The  First  and  Second  Banks  of  the  United  States,        -  -         109 

Chapter  VIII. 
State  Banks  Until  1816,        -  .  .  -  .  125 

Chapter  IX. 
The  State  Banks  from  1816  to  1863,      -  .  -  .         i^S 

Chapter  X. 
The  Suspension  of  Specie  Payments  in  1861,  -  -  151 

Chapter  XI. 
The  Issue  of  Legal  Tender  Notes,  -  .  .  .         jce 

Chapter  XII. 
The  National  Bank  Act,         -----  jgj 

Chapter  XIII. 
The  National  Bank  Act,  Continued,      -  -  -  .         167 

Chapter  XIV. 
The  Resumption  of  Specie  Payments,  -  -  -  174 

Chapter  XV. 
Banking  Since  1882,       ---.,.         j-g 


er  tHe 


"-'si 


^    \ee8      ^T 


X 


/  \  A 


BANKING 


A  SHORT  HISTORY 


BY 


FRANKLIN  L.  CHASE 


JNO.  K.  ALLEN 


•      :• 


CHICAGO 

I-ANWARD    PUBLISHING    COMPANY 

1888. 


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COI'VRIGIIT,    1888, 
BY  THS 


m\  I.ANWARD    PuBLISHIiyC    Co., 

CHICAfld. 


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fUNIVERSITTj 


A  SHORT  HISTORY  OF  BANKING. 

M  i^^^ 

Chapter  I. 

ANCIENT   BANKING. 

Banking  is  an  outgrowth  of  commerce.  In  its  most 
primitive  form — money-changing — it  assumed  the  first 
function  of  banking  demanded  by  the  times,  and  as  com- 
merce increased  between  man  and  men  and  between 
country  and  countries,  other  functions  developed  as  neces- 
sity required,  until  to-day  the  business  of  banking  occu- 
pies a  proud  position  among  the  institutions  which  have 
contributed  to  the  development  of  the  world. 


GOLD  STATER  OF  MILETUS,  ABOUT  800  B.  C. 

The  modern  word  bank  seems  to  have  been  derived 
from  the  German  word  "banck,"  which  was  introduced 
into  Italy  by  the  dominant  Germans  in  the  twelfth  cent- 
ury, and  became  Italianized  into  the  word  "banco,"  which 
was  used  interchangeably  with  the  word  "  monte,"  to  mean 
a  collection  of  credit  or  money.* 

The  late  George  Smith,  during  his  researches  among 
the  ruins  of  Babylon,  found  tabletsf  which  are  the  com- 


•Macleod's  "  Elcmenls  of  Economy,"  vol.  i.,  p.  375. 
t  London  Backers'  Magazine,  1877,  p.  Ito. 

s 


mercial  inbtrumcnts  or  checks  and  notes  of  a  Babylonian 
banking  fii-.i,  trading  under  the  name  of  the  founder, 
Egibi.  The  firm  appears  to  have  been,  practically,  a 
national  bank  of  Babylonia,  and  its  transactions  were  of 
the  most  extensive  character.  Mr.  W.  St.  C.  Boscawen 
has  studied  these  tablets  closely,  and  publishes  the  follow- 
ing interesting  information*  concerning  them: 

"Sula,  son  of  Zirukin,  son  of  Egibi,  appears  as  con- 
tracting party  in  the  third  year  of  Nebuchadnezzar,  and 
continues  to  be  at  the  head  of  the  firm  until  the  twenty- 
third  year  of  that  monarch.  In  the  fifteenth  year  of  this 
reign,  his  son,  Nabuakhi-idin,  is  taken  into  the  firm  and 
appears  in  company  with  his  father  as  contracting  party 


SHEKEL  OF  SIMON,  PRINCE  OF  ISRAEL;  round  the  vine  leal  is  "First  year  of  the 

redemption  of  Israel." 

"The  tablets  give  us  a  complete  succession  of  an- 
nual transactions  from  the  first  of  Nebuchadnezzar  to  the 
thirty-fifth  of  Darius.  There  is  one  tablet  dated  in  the 
fourth  year  of  Nabupaluzar  (Nabopalassar)  ;  tablets  dated 
in  the  reign  of  this  monarch  are  very  rare.  By  means  of 
a  lunar  eclipse  mentioned  by  Claudius  Ptolemaeus  as  taking 
place  in  the  fifth  year  of  Nabopalassar,  we  are  enabled  to 
fix  the  date  of  this  year  to  B.  C.  621;  this  gives  B.  C.  625 
as  the  first  year  of  this  monarch.  From  this  date,  for 
more  than  a  century,  this  bank  appears  to  have  carried 
on  its  business  regularly,  but  in  the  month  Abb  [the  elev- 
enth month,  or  July  of  the  Jews. — Ed.]    B.  C.    516,  the 


*  Dean's  *'  History  of  Bankin^^  and  Banks,"  p.  3. 


revolt  of  Aracus  against  Darius  took  pla«e}' the  firm  of 
Egibi  was  unable  to  transact  any  business  ot^ing  to  the 


DRACHM  OF  SYBARIS,  600  B.  C. 

revolt  at  Babylon,  and  the  history  of  this  remarkable  bank 
cannot  be  traced  any  further." 


TKTRADRACHM  OF  ALEXANDER  I.  OF  MACEDON,  500  B.  C. 


In  Greece,  money-changers  formed  a  distinct  class  of 
business  men  as  early  as  the  fourth  century  before  Christ.* 
It  was  their  custom  to  receive  money  from  depositors  and 


DRACHM  OF  HIERON  OF  SYRACUSE,  478  B.  C. 

to  loan  it  to  others  at  rates  of  interest  varying  from  ten  to 
thirty-six  per  cent.     A  portion  of  their  income  was  derived 


*  Boeckh's  "Public  Economy  of  the  Athenians." 


8 

from  premiums  received  for  exchanging  coins  which  floated 
to  Greece  from  other  countries.  From  Plutarch  it  is 
learned  that  discount  was  known  to  the  Athenians,  and 
the  rate  of  discount  was  often  made   so  excessive  as  to 


ATHENIAN  DIDRACHM,  470  B.  C. 

bring  some  money-changers  into  disrepute.  This  was 
possible  under  the  Attic  law  which  permitted  every  lender 
to  charge  as  much  interest  as  he  chose. 


SYRACUSAN  TETRADRACHM  OF  DIONYSIOS,  406  B.  C. 

Money-changers  as  a  rule  maintained  a  high  credit  and 
were  so  implicitly  trusted  that  transactions  with  them  were 


DroRACHM  OF  SYRACUSE. 

often  carried  out  without  witnesses.     Of  the  best  known 
of  these  primitive  bankers  was  Pasion,  whose  profit  from 


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7 


^Vft^hUS  *200,  000.00 

J. S.  Chick     President. 

W.H.  Chick    Vice   Prest. 

W.J.  Anderson    Cashier. 

F.  IS.  Chick    AssK  Cashr. 

W.F.Sargent  2"^    Asst.  Cashr. 


Or 


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W.  J.  SPICER,  Gen.  Manager. 
GEO.  B.  REEVE,  Traffic  Mgr. 
W.  E.  DAVIS.  Gen.  Pas*.  Agt. 
CHICAGO  It  GRAND  TRUNK  RY. 


iOSEPHHICKSON.Gen.Mgr. 

L.  J.  SEAR6EANT,  Traffic  Mgr 

WM.  EDGAR,  Gen.  Pass.  Agt 

GRAND  TRUNK  RAILWAY. 


^,MB.  SUJVIMZP  JOUpiSJ  JIGKEJS 

Via   Niagara    Falls  or   Rapids  of  the  St.    Lawrence,  to  the   prinoipa 

Mountain,  Seaside  and  Pleasure  Resorts  in  the   Kast  are  on 

sale  during  the  Summer  months.    For  description 

and    particulars,    address 

E.  H.  HUGHES.  Gen-l  We8T'n  Pass.  Agent. 

I03  South  Clark  Street,  CHICAGO. 


his  exchange  bank  was  one  hundred  minas  annually, 
equivalent  to  $1,710.  When  Pasion  died  the  bank  was 
assumed  by  Phormio,  who  paid  an  annual  rental  of  $2,736 
for  the  office  and  business. 


ATHENIAN  DRACHM  OF  THE  EARLIEST  DATE. 

Of  forms  of  business  more  nearly  approaching  the 
state  banks  of  later  times  we  are  not  without  examples 
in  Greece.     At  New  Ilion  a  bank  seems  to  have  transacted 


EARLY  CORINTHIAN  DRACHM. 

the  financial  business  of  the  state  in  the  third  or  second 
century  before  Christ,  paying  ten  per  cent  interest  on 
money  for  public  use. 


TETRADRACHM  OF  MITHRIDATES,  KING  OF  PONTUS,  337  B.  C. 

There  are  also  evidences  that  the  authorities  in 
charge  of  the  temple  of  Delos,  and  that  at  Delphi,  loaned 
money  belonging  to  them,  but  there  is  no  evidence  that 


lO 


this  money  was  that  deposited  for  safe-keeping.     In  By- 
zantium a  precedent  for  giving  one  organization  the  entire 


TETRADRACHM  OF  ALEXANDER  THE  GREAT,  336  B.  C. 

control  of  the  banking  business  may  be  found,  where,  in 
a  time  of  financial  embarrassment,  the  money-changing 


TETRADRACHM  OF  PRUSIAS,  KING  OF  BITHVNIA,  iSo  B.C. 

business  was  farmed  out  to  a  single  bank,  and  a  penalty 
was  inflicted  for  buying  or  selling  money  elsewhere,  the 


TETRADRACHM  OF  PERSEUS,  THE  LAST  OF  THE  KINGS  OF 
MACEDON,  168  B.  C. 

penalty  being  no  less  severe  than  the  forfeiture  of   the 
sums  bought  or  sold. 


II 


In  Rome  the  Decemvirate  made  stringent  laws 
against  usury  in  the  year  449  B.  C,  and  fixed  the  maxi- 
mum rate  of  interest  at  ten  per  cent.     It  is  evident  that 


SHEKEL  OF  SIMON  MACCABEUS,    140  B.C. 

such  a  law  was  called  forth  by  the  existence  of  the  occu- 
pation of  money-lending.  In  346  B.  C,  the  rate  of  in- 
terest was  lowered  to  five  per  cent,  and  in  341  B.  C,  the 


GOLD   COIN    OF   1311UTUS,  509  B.  C. 


taking  of  interest  was  altogether  forbidden,  but  the  law 
being  inoperative,  interest  was  about  this  period  estab- 
lished at  one  per  cent  per  month. 


FIRST  BRONZE  OF  AUGUSTUS,  17  B.  C. 

The  commerce  which  Rome  had  with  the  eastern  and 
other  countries,  naturally  created  an  influx  of  foreign  coin, 
necessitating  as  in  Greece,  the  class  known  as  money- 
changers, whose  stone  stalls  were  located  along  both  sides 


12 

of  the  Forum — the  Exchano-e  of  Rome.*  While  the  Ro- 
mans seem  to  have  adopted  the  simple  methods  of  mon- 
eyed speculation  from  the  Greeks,  it  is  quite  generally- 
conceded  that  they  enlarged  and  perfected  the  system  un- 
til it  became  something  more  similar  to  modern  banking 


TETRADRACHM  OF  M.  ANTHONY  AND  CLEOPATRA,  33  B.  C. 

than  any  system  the  Greeks  had  known.  Indeed, 
Macleodf  goes  so  far  as  to  state  that  banking,  as  a  techni- 
cal business,  was  invented  by  the  Romans.  In  our  judg- 
ment this  is  a  wrong  use  of  the  term,  as  such  businesses  as 
banking  are  but  simple  developments  made   necessary  by 


FIRST  BRONZE  OF  TIBERIUS  CLAUDIUS  DRUSUS,  14  A.  D. 

the  increasing  volume  of  financial  transactions,  and  while 
the  Romans  may  have  produced  some  business  forms 
which  were  novel,  it  is  not  correct  to  say  that  they  "in- 
vented" banking. 

No  branch  of  Roman  commerce  was  more  vigorously 


*  Mommscn's  ''  History  of  Rome." 

t  Macleod's  "Theory  and  Practice  of  Banking.'' 


/ 


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13 


prosecuted,  according  to  Mommsen,  than  that  of  the 
money-lender  and  money-dealer  or  banker,  the  practice  of 
placing  large  sums  of  money  with  a  banking  agent,  who 


FIKST  HRJNZii  OF  TIBERIUS   CLAUDIUS  NEIIO  DRUSUS,  54  A.  D. 

received  and  made  payments,  invested  and  borrowed,  and 
conducted   financial  business  at  home  and  abroad,  being 


MICHAEL  AND  HIS  MOTHER  THEODORA,  57  A.  D. 
WITH  BUST  OF  CHRIST. 

fully  developed  in  the  time  of  Cato — 209-149  B.  C.     With 
the  activity  of  commerce  which  Rome  enjoyed,  bankers 


FIRST  BRONZE  OF  TITUS  FLAVIUS    DOMITIANUS,  C9  A.   D. 

spread  rapidly  throughout  the  provinces  and  dependent 
states. 


14 

To  the  literature  of  Rome  we  are  indebted  for  con- 
temporaneous references  which  inform  us  of  the  uses  of 
banking  terms  still  in  use,  such  as  "checque,"  "drafts," 
etc. 

In  Italy  the  money-changers  were  established  at  a 
very  early  period  of  the  middle  ages,  and  the  city  of  Flor- 


FIRST    BRONZE   OF  NERVA,9r>  A.  D. 

ence  became  a  recognized  monetary  center.  As  early  as 
the  first  quarter  of  the  eleventh  century,  Florentine  citizens 
loaned  money  to  sovereign  princes.  In  1265  the  money- 
changers of  that  city  formed  themselves  into  a  guild.*  It 
is  probable  that  the  business  of  the  money-changers  even 
at  that  early  day  was  approaching  the  characteristic  fea- 


ROMAN  UNCIA,  OR  ONE-TWELFTH  OF  THE  AS. 

ture  of  banking — the  dealing  in  credit,  as  in  1300  the 
Mozzi  and  the  Spini  families  are  mentioned  as  being  the 
bankers  of  Popes,  and  the  last  named  as  having  a  branch 
at  Rome  under  the  management  of  Nero  Cambi.  By  1378 
banking  operations  in  Italy  had  attained  great  importance, 


*  Trolloppe's  "  History  of  the  Commonwealth  of  Florence,"  vol.  i,  p.  176. 


15 

due  to  the  necessary  transmission  of  money  from  distant 
parts  of  Europe  to  the  Pope's  court  at  Rome  and  Avignon, 
and  most  of  the  bankingf  business  was  in  the  hands  of 


DENARIUS  OF  GORDIANUS  III,  23«  A.  p. 


Florentine  citizens.  The  Strozzi  were  in  later  years,  1513 
to  1534,  bankers  to  Leo  X.  and  Clement  VII.,  accumula- 
ting  wealth    by  their   sagacity   which  is  still  enjoyed  by 


rONSKCRATIO  DENARIUS,  OF   MARINIANA,  WIFE  OF  VALERIANUS  AND 
MOTHER  OF  GALLIKXUS,  iSi  A.  D. 

their  descendants.  About  the  middle  of  the  fourteenth 
century  the  famous  banking  house  of  the  Alberti  had 
counters    in   Avignon,    Bruges,     Brussells,   Paris,    Siena 


BRONZE  OF  CONSTANTINE  I.,  3^3  A.  D. 

Perugia,  Rome,  Naples,  Barletta  and  Venice.  Still 
greater  than  the  Alberti  were  the  Peruzzi  and  their  associ- 
ates, the  Bardi.  In  1346  the  failure  of  Edward  III.,  of 
England,  to  pay  1,365^000  golden  florins,  borrowed  of  the 


i6 

^  Florentine  bankers,  caused  a  bankruptcy  which  seriously 
disturbed  the  entire  commercial  system  of  Europe.  Later 
the  Strozzi  suffered  seriouslossesby  the  king  of  France  and 
the  popes,  but,  in  spite  of  these  losses,  the  Florentine  bank- 
ers regained  their  wealth  through  their  lucrative  business. 


DOMINUS  NOSTER  AN  ASTASIUS,  |ix>  A.  D, 


From  1414  to  1423  times  were  prosperous  in  Florence, 
and  at  that  period  seventy-two  banks  could  be  counted  in 
the  streets  surrounding  the  Mercato  Nuovo.  From  1430 
to  1433,  seventy-six  bankers  lent  the  State  4,865,000  gold 
florins,  but,  although  there  were  said  to  be  eighty  bankers 
in  Florence  at  one  time,  there  was  no  public  bank. 


ALEXIUS  COMNENUS,  1081,  A.  D.,  WITH  FIGURE  OF  CHRIST. 

Mr.  Henry  Mann  attributes  the  invention  of  bank- 
notes to  the  republic  of  Carthage,*  but  his  testimony  is 
not  conclusive  enough,  being  based  on  this  statement  of 
.^schines,  the  Socratic  philosopher  :  "  In  a  small  piece  of 
leather  is   wrapped  a  substance   of  the  size  of  a  piece  of 


*  Henry  Mann's  "Ancient  and  Mediseval  Republic;,"  p.  19. 


17 

four  drachms,  but  what  this  substance  is  no  one  knows 
except  the  maker.  After  this  it  is  sealed  and  issued  for 
circulation  ;  and  he  who  possesses  the  most  of  this  is  re- 
garded as  having  the  most  money  and  as  being  the 
wealthiest  man."  Jevons*  shows  that  leather  was  one  of 
the  earliest  of  circulating  mediums,  and  was  used  without 
regard  to  any  system  of  banking. 

As  early  as  807,  A.  D.,  the  Chinese  are  credited  with 
the  invention  of  the  bank-note.f  In  that  year  the  emperor 
exchanged  all  the  money  deposited  in  the  public  treasury 
by  merchants  and  rich  persons  for  notes,  termed  "flying 
money."  It  remained  in  circulation  but  three  years  in  the 
capital,  and  became  current  only  in  the  provinces. 


CHINESE  COPPER  COIN. 

In  960,  A.  D.,  an  emperor  revived  the  practice  of  giv- 
ing notes  for  money  deposited  by  merchants,  and  so  great 
was  the  convenience  of  the  notes  that  their  circulation  in- 
creased rapidly.  In  997,  A.  D.,  there  had  been  1,700,000 
ounces  of  silver  exchanged  for  paper,  while  in  102  i  the 
paper  in  circulation  had  increased  to  the  value  of  2,830,000 
ounces.  A  company  of  sixteen  rich  merchants  was  then 
formed  which  was  allowed  to  issue  notes,  payable  in  three 
years.  The  company  was  bankrupt  upon  the  expiration 
of  that  time,  and  much  suffering  was  caused  by  its  failure 

to  pay.     The  emperor  then    abolished   the  notes  of  this 

« 

*  \V.  Stanley  Jevons*  '*  Money  and  the  Mechanism  of  Exchanjfe,"  p.  197, 
t  Macleod  on  ''Tlieory  and  Practice  of  Banking,*' vol.  i,  p.  288. 


i8 

company  and  prevented  the  formation  of  other  joint-stock 
companies.  After  that  the  government  only  possessed  the 
power  to  issue  notes,  which  were  made  of  the  value  of  one 
ounce  of  silver.  In  1032  these  notes  were  circulating  to 
the  value  of  5,256,340  ounces.  Banks  of  this  nature  were 
subsequently  established  in  every  province,  but  the  notes 
did  not  have  inter-provincial  circulation.  To  these  notes, 
exchangeable  for,  and  convertible  into,  money,  is  given 
the  credit  for  being  the  first  on  record. 


SILVER  ITZfiBU  OF  JAPAN 


Chapter  II. 


EARLY   BANKING. 


In  1401  the  "  Tabla  de  Cambi"  (Table  of  Exchange), 
was  established  at  Barcelona,  Spain.*  The  city  funds 
were  its  guarantee,  and  it  was  established  by  the  city  au- 
thorities as  an  aid  to  commerce.  Foreign  bills  of  exchange 
were  negotiated  in  it,  and  a  loan  business  was  carried  on. 
It  seems  to  have  been  the  result  of  the  assumption  by  the 
city  of  banking  privileges  which  had  been  granted  the 
cloth  merchants  in  1350. 


CROWN  OF  FERDINAND   v.,  M95  A.  D. 

In  1781  the  bank  of  San  Carlos  was  established  at 
Madrid,  as  a  national  bank  on  a  plan  advanced  by  the 
minister  of  finance.  Its  capital  consisted  of  300,000000 
reals,  divided  into  150,000  shares  Profitable  contracts 
with  the  government  were  secured  and  enjoyed  until  1785, 
when  they  were  taken  away. 

Bills  of  exchange  followed  what  were  termed  "as- 
signments."     Authorities  differ  as  to  the  date  of    their 


s  *  Capmany's   *' Historical  Memoirs  of  Barcelona." 

«9 


20 


first  use.  By  some  they  are  ascribed  to  Lyons,  France. 
Weber  states  that  they  were  in  use  in  1 171.  Among  the 
earHest  ones  preserved  to  the  present  time,  are  those  is- 
sued from  Milan  on  Lucca  in  1325,  from  Bruges  on  Bar- 
celona in  1404,  and  from  Bologna  on  Venice  in  1381.  To 
the  Italians  we  are  indebted  for  many  of    the    technical 


JOHANNA  QUEEN  OF  JERUSALEM  AND  SICILY,  i;8j  A.  D. 

terms  used  in  banking,  such  as  drafts,  remittances,  cur- 
rency, sight,  usance  and  discount.* 

The  first  public  bank  in  Italy  was  that  established  at 
Naples  in  I565.t  There  had  been  sixty  great  bankers  in 
Naples,  but,  notwithstanding  they  were  obliged  to  deposit 
40,000  ducats  with  the  government  as  security,  they  fre- 


TKSTON  OF  CHARLES  I.,  DUKE  OF  SAVOY,  1470  A.  D. 

quehtly  failed  and  caused  great  distress.  On  this  account 
the  government  decided  to  establish  a  public  bank  to  be 
known  as  the  Banco  di  A.  G.  P.  et  di  Pieta.  Following 
this,  several  joint-banks  were  established — as  the  Banco  del 
Popolo,  in  1589;  the  Ba7ico  dcllo  Santo  Spirito,  in  1591  ; 


*  Ycrits*    "  Growth  nnd  Vicissitudes  of  Commerce." 

t  Maclcod's  "1  heory  and  Practice  ol  Banking,"  vol.  i,  p.  290. 


/ 


^■^It 


■'?t*i' 


Co 


21 

ihe  Banco  di  S.  Eli^io,  in  1596;  the  Banco  di  S.  Gia- 
como,  in  1597;  the  Banco  delle  Povere,  in  1600,  and  the 
Banco  de  SS.  Salvatore,  in  1604.  The  private  bankers" 
were  not  able  to  withstand  competition  with  the  joint- 
stock  companies  and  none  survived  after  the  last-named 
date. 

Following  closely  after  the  establishment  and  growth 
of  banking  in  Florence,  the  Bank  of  Venice  was  estab- 
lished. Nearly  all  writers  place  the  date  of  the  organiza- 
tion of  this  famous  institution  at  11 71,  but  Macleod  has 
pointed  out  that  it  ^as  not  organized  until  1587.  The 
confusion  has  arisen  because  of  the  fact  that  in  1 171,  the 
Venetian  republic,  to  meet   financial   necessities,   levied  a 


PEXNY  OF  DOGE  ANDREAS  UA.NDuLO,  1343  A.  D. 

forced  loan,  bearing  four  per  cent  interest,  with  transfer- 
able stock,  and  managed  by  commissioners  appointed  in 
1 1 73.  The  loan  was  called  the  monte  vecckio,  z.\\<X\.\<o 
similar  ones  following  it,  were  termed  vwnte  miovo  and 
monte  nuovissiino.  The  word  monte  has  been  translated 
bank,  and  thus  these_public  debtt;-have  been  termed  banks, 
while,  as  a  matter  of  fact,  the  public  debt  commissioners 
exercised  no  functions  resembling  banking. 

The  first  bankers  in  Venice  were  two  Jews  who  es- 
tablished themselves  in  1400.  Their  success  attracted 
other  persons  (particularly  members  of  the  nobility  )  into 
the  business,  but  the  usual  failures  followed  until  in  1587 
the  senate  prohibited  the  nobility  from  entering  the  busi- 
ness, and  established  the  Bank  of  Venice. 


7 


22 

Merchants  were  invited  to  deposit  their  money  in  an 
office  managed  by  the  commissioners  of  public  debt,  for 
which  they  received  credit  on  the  bank's  books.  This 
credit  was  transferable  and  payable  in  bullion  on  demand. 
An  act  was  passed  requiring  all  bills  on  Venice  to  be  paid 


DOGE  FRANCISCO  MORISINI,   1690  A.  D. 

in  bank  money,  which  gave  it  a  premium  of  about  nine 
per  cent.  The  bank  transacted  no  business  on  its  own 
account,  but  the  money  in  its  vaults  was  taken  on  various 
pretexts  by  the  State,  and  in  1678,  in  1691,  and  again  from 


^^%\ 


CROWN   OF  LUDOVICUS  MANIN— THE  LAST  OF  THE  DOGES. 

17 1 7  to  1739,  it  suspended  payments.  An  attempt  was 
made  to  raise  a  loan  by  creating  credits  on  the  bank's 
books,  but  the  credits  fell  to  a  discount  of  twenty  per  cent 
as  compared  with  specie,  and  the  Government  mortgaged 
a  part  of    its   revenue  to  collect  a  funcl  of   "real   current 


23 

specie"  with    wliich  to  purchase  these  transfer  credits,  by 
which  means  their  par  value  was  restored. 

The  Bank  of  St.  George,  in  Genoa,  occupied  a  most 
prominent  position  among  the  early  influences  which  aided 
commercial  development.  As  in  the  case  of  the  Bank  of 
Venice,  however,  most  historians  ascribe  its  establishment 
to  a  much  too  early  date. 

It  was  in  1 148  that  the  Genoese  Government  incurred \ 
its  first  formal  debt.     The  creditors  chose  from  their  num-   ^ 
ber  a  council  to  watch  over  the  debt  due  them  and  to  se-    / 
cure  its  collection,  the  Government   having  conceded  cer-  /  ■ 
tain  customs  duties  for  a  term  of  years  ia  payment  of  the* 
debt.     Each  one  hundred  francs  of  the  debt  was  a  share,  1 
and  each  creditor  a  share-holder.      In  this  manner    were 
numerous   loans   made   by   the    Government,   each    loan) 
being  termed  a  "  compera"    and  all  the  loans  collectively 
being   known   as  Tlie   *'^Compere   of.   St.    George."     In 
1252*  these  loans  became  so  numerous  as  to  require  con- 
solidation   under    one  head,  with  a  chancellor  in  charge. 
In  1302,  so  great  had  become  the  national  debt,  stringent 
regulations  were  enacted  by  which  no  future  loan  could  be 
effected  without  the  consent  of  the  representatives  of  the 
existing  creditors.     In  1339  a  popular  revolution  occurred 
at  which  all  the  old  books  of  the  "compere"  were  burned, 
and  a  new  regulating  commission   was   appointed.     This 
has  been  mentioned  as  that  of  the  origin  of  the  bank,  but 
it  was  simply  a  step  further  in   consolidating  the  national 
debt. 


In  1371  is  recorded,  in  connection  with  the  Bank  of 
Genoa,  the  first  known  instance  of  the  compounding  of 
interest.     Francesco  Vivaldi  gave  his  shares  in  the  Com- 


) 


•  Bent's  "  Genoa,"  pp.  220-241. 


\ 


•24 

pere  of  St.  George  to  the  compere,  the  interest  on  them 
to  be  annually  applied  to  the  purchase  of  other  shares, 
until  a  sum  should  be  collected  in  addition  to  the  principal, 
which  should  be  sufficient  to  pay  off  one  of  the  specific 
loans.  This  done,  the  process  should  be  repeated. 
Others  followed  in  Vivaldi's  steps,  and  the  credit  of  the 
-compere  grew  apace. 

In  1407  wars  had  so  pressed  the  State  into  seeking 
money  advances  that  an  entire  reorganization  was  decided 
upon.  Nine  men  drew  up  a  plan  on  which  all  the  shares 
were  reunited,  and  the  interest  for  all  was  made  seven  per 
cent.  New  officers  were  selected  and  the  organization  re- 
named the  Bank  of  St.  George.  It  possessed  peculiar 
powers  of  self-government  entirely  independent  of  the 
State,  and  in  this  year  a  new  constitution  was  given  it, 
under  the  provisions  of  which  eight  "protectors"  were 
elected,  each  of  whom  was  required  to  have  an  interest 
in  the  bank  of  not  less  than  one  thousand  florins.  These 
directors  were  given  the  offices  of  President,  Treasurer- 
General,  Superintender  of  the  sale  of  shares,  three  Judges 
and  two  Secretaries,  each  of  whom  remained  in  office  one 
year.  Over  these  was  the  General  Council  of  four  hun- 
dred and  eighty,  and  to  this  every  holder  of  ten  or  more 
shares,  and  over  eighteen  years  of  age,  was  eligible.  In 
return  for  money  advanced  by  the  bank  to  the  Govern- 
ment, various  colonies  and  provinces  were  made  over  to 
the  bank  as  pledges  for  repayment. 

In  1675,  the  directors  of  the  bank  saw  the  necessity 
of  adopting  some  more  convenient  methods  of  doing  busi- 
ness. The  old  title  of  "compere  "  then  disappeared,  and 
the  institution  became  known  strictly  as  a  bank.  It  is 
from  this  year  that  Macleod  ascribes  the  establishment  of 
the  Bank  of  St.  George,  because  it  first  adopted  functions 


25 

of  modern  banking,  such  as  the  negotiating  of  loans  and 
the  deposit  and  withdrawing  of  money,  but  no  history  of 
banking  would  be  complete  which  failed  to  give  an  outline 
of  the  fiscal  measures  from  which  modern  banking  grew. 

In  1675  four  branches  were  establish'^d  in   different 
parts  of  the  city.      Later  the  invading   Austrian  army,  in 
1746,   carried  away  most  of  the  gold   belonging   to   the 
bank,  seriously  crippling  it,  but  in  a  "monte  of  preserva- 
tion," established  by  the  bank  in  1750,  a  record  of  all  sus- 
pended payments  was  kept  and  they  were  paid  after  the 
Austrians  left.     After  a  time  the  people  came  to  see  thatv 
the  complex  arrangement  by  which  the  public  taxes  were   | 
collected  and  retained  by  the  directors  of  the  bank,  was  ay 
species  of  tyranny,  and  the  bank  was  obliged  to  surrender 
its  privileges.     As  these  were  its  sole  source  of  income, 
the  bank  notes   were   found  valueless,  and  the  bank  was 
ignominiously  cloaed__about  1798.     Efforts  to  re-establish 
it  were  made  in    1804  and  1814,  but  they  were  entirely 
unsuccessful. 

In  1609  the  Bank  of  Amsterdam  was  established  under 
a  guarantee  given  by  the  city..  The  causes  which  led  to 
the  creation  of  this  bank  were  far  different  from  those 
which  caused  the  establishment  of  the  banks-aLVenica 
and  Genoa,  which  hadthgir  origin  in  forced  loans  JjyXhe 
Governments.  The  prominent  position  occupied  by  Am- 
sterdam in  international  commerce,  drew  to  its  merchants 
the  coinage  of  all  countries,  much  of  it  worn  and  clipped. 
So  marked  was  this  influx  of  coin  that  the  currency  of 
Amsterdam  was  reduced  about  nine  per  cent  below  the 
value  of  newly-coined  money,  and,  although  money  might 
be  plenty  in  the  city,  merchants  were  frequently  at  a  loss 
to  secure  enough  of  par  value  to  pay  their  bills  of  ex- 
change, the  value  of  which,  therefore,  became  uncertain. 


26 

The  bank  accepted  all  coin  at  its  standard  value,  de- 
ductino-  a  small  amount  for  expenses  of  coinage  and  man- 
agement, and  gave  a  credit  on  its  books  for  the  amount. 
This  credit  was  naturally  termed  bank-money.  It  pos- 
sessed a  constant  value  and  was  worth  more  than  money 
in  actual  circulation. 

When  the  bank  was  created,  it  was  ordained  that  bills 
drawn  on  Amsterdam,  or  bills  negotiated  in  Amsterdam, 
of  the  value  of  six  hundred  guilders  or  more,  should  be 
paid  in  bank-money.  This  gave  a  uniform  value  to  bills 
of  exchange,  and  obliged  every  merchant  to  keep  an  ac- 
count with  the  bank,  in  order  to  pay  his  foreign  bills  of  ex- 
change. 

Other  conveniences  of  bank-money  brought  it  to  a 
premium ;  the  safety  of  it  seemed  to  be  assured ;  the  city 
guaranteed  its  payment  on  demand  ;  payments  made  in  it 
were  in  the  most  convenient  form,  and  the  premium  on  it 
was  lost  if  the  deposit  was  withdrawn.  The  natural  result 
was  that  immense  sums  of  money  found  their  way  into  the 
bank  vaults,  where  they  were  popularly  supposed  to  re- 
main. 

Adam  Smith  *  published  a  statement  made  to  him  by 
Hope,  the  Amsterdam  merchant,  to  the  effect  that  the  de- 
posits of  coin  formed  but  a  small  part  of  its  capital,  as  the 
bank  had  been  in  the  practice,  for  many  years,  of  giving 
credit  for  deposits  of  gold  and  silver  bullion.  For  bullion 
the  bank  gave  a  receipt,  which  permitted  its  removal  at  any 
time  within  six  months,  on  retransferring  to  the  bank  a 
sum  of  bank-money  equal  to  the  credit  given  for  the 
bullion.  For  the  care  of  gold  bullion  one-half  per  cent 
was  charged,  and  for  silver  one-fourth  per  cent.  If  the 
bullion  was  not  removed  on  the  expiration  of  six  months, 


•  Adam  Smith's  "  Wealth  of  Nations." 


27 

it  reverted  to  the  bank  at  the  price  for  which  credit  had 
been  given  on  its  deposit.  The  effect  of  this  was  to 
stimulate  trade  in  bullion. 

There  was  no  cause  for  distrusting  the  statement  that 
the  entire  deposits  made  to  the  bank  were  kept  intact 
until  1672,  when  the  French  invasion  as  far  as  Utrecht  oc- 
curred. A  rush  was  made  by  depositors  for  coin  to  the 
amount  of  their  credits,  and,  in  accordance  with  the  prin- 
ciple on  which  the  bank  was  founded,  the  deposits  were 
found  to  be  complete,  and  the  bank  met  every  demand. 
This  run,  and  its  successful  weathering  by  the  bank,  in- 
creased popular  confidence  in  the  institution  and  greatly 
raised  its  credit. 

For  one  hundred  and  eighteen  years  after  this  the 
bank  performed  its  functions  with  great  efficiency,  and 
solemn  oaths  were  recorded  with  regularity  that  the 
treasures  were  intact.  No  public  investigation  of  the  bank 
was  made  in  all  this  time,  and  the  fact  that  the  bank,  con- 
trary to  the  statements  of  its  officers,  had  been  advancing 
money  to  the  unfortunate  East  India  Company  and  to  dif- 
ferent provinces,  was  not  publicly  known  until  in  Decem- 
ber, I  790. 

When  Mr  Hope  wrote  Adam  Smith  (about  1775),  he 
stated  that  there  were  about  two  thousand  depositors,  and 
that  the  bank  possessed  ^3,000,000  In  1790  it  was  dis- 
covered that  most  of  the  deposits  in  the  bank  had  disap- 
peared fifty  years  before,  and  that  there  was  then  but  a 
small  sum  left.  The  bank,  to  save  itself,  suddenly  an- 
nounced that  in  the  future  it  would  pay  out  silver  only  at 
a  discount  of  ten  per  cent,  and  that  no  deposits  would  be 
paid  of  less  than  2,500  florins.  This  practical  confession 
of  bankruptcy  caused  its  receipts  to  fall  from  105  to  50, 
and  created  a  run.     The  order  was  rescinded,  after  a  short 


28 


time,  and  credit  was  re-established  with  the  people,  who 
had  no  knowledge  of  the  bank's  real  condition. 

In  1 794  the  French  entered  Amsterdam,  and  an  ex- 
amination of  the  bank's  affairs  showed  that  eleven  millions 
of  florins  had  been  advanced  by  the  bank  to  the  East  India 
Company  and  to  the  provinces  of  Holland  and  West  Fries- 
land.  The  disclosure  of  this  breach  of  trust,  and  the  in- 
ability to  recover  the  money,  brought  its  credits  down  to 
sixteen  per  cent  below  current  coin,  and  the  bank  assigned 
its  claims  against  the  company  and  the  States  to  its  de- 
positors. 


TflALKR   OF   PHILIP.— 1198. 

/     In    1619  the   present   Bank  of  Hamburg  was  estab- 
lished,—ten  years  after  the  Bank  of  Amsterdam,  and  to 
/remedy  the  same  evils  in  Hamburg  as  prevailed  at  Am- 
/ste^damT^^tol-eceivft^j^  rQ\r\<i  gf  uncertain  value, 

^nd  circulate  in  their  stead  bank-credits  of  a  positive  value. 
"  In  a  city  of  the  highest  rank  for  commercial  activity," 
says  Palgrave,*  "but  greatly  circumscribed  in  territory, 
continually  receiving  payments  for  merchandise  in  the  coin 
of  other  countries,  a  common  standard  of  value  was  a 
matter  of  primary  necessity." 

The   bank  received  at  first  only  the  rix  dollars   of 
the  German  Empire,  a  silver  coin  having  a  fixed  stand- 

*  Palgrave's  "  Notes  on  B:inkinj;,"  p.  1 15. 


^if*" '  'V- 


o.  r'"' 


f^oj^Ey  /a/vested 


Imdividvau         ^ 

U^Biiitv  or  * 
5Tt)CKHOip£R5 
"  600.000m 


»-» 


29 

ard.  The  German  Government  soon  coined  a  rix-dollar 
of  light  weight,  and  large  numbers  found  their  way  into 
the  bank  before  the  fraud  was  discovered.  The  confusion 
was  so  great  as  to  cause  the  closure  of  the  bank  for  a 
short  time. 


THAI.ER  OF  CHARLES  OF  EGMOND,  1530. 

A  basis  of  value  was  adopted,  midway  between  the 
standard  and  debased  coins,  on  which  settlements  were 
effected  in  1770.  This  basis  of  value  was  termed  a  "  mark 
banco,"  and  from  that  time  the  "  mark  banco  "  was  the 
unit  of  the  money  of  account  in  the  bank.  Deposits  were 
received  by  weight  (whether  of  coin  or  bullion),  and 
credits  were  made  on  the  basis  of  "  mark  banco"  for  every 
59  }i  parts  of  a  metrical  pound  of  silver  of  the  fineness  of 
,S  or  over.  For  its  services  the  bank  charged  one-eighth 
per  cent  to  the  seller  of  the  silver.  This  system  required 
the  assaying  of  each  quantity  of  silver  received.  The 
bank-money  on  this  basis  was  quite  as  permanent  as  any, 
Colwell*  saying  of  it  in  1859  that  it  had  commanded  a 
premium  above  the  currency  of  coins  in  general  circulation 
of  from  twenty  to  twenty-five  per  cent  for  a  long  period. 

Payments  made  were  merely  transfers  from  one  per- 
son's account  at  the  bank  to  that  of  another,  and  payers 
were  obliged  to  appear  personally,  or  by  attorneys,  with 

*  ColwclPs  "  Ways  and  Means  of  Payment,** 


30 

checks  with  printed  signatures.  Only  merchants  in  Ham- 
burg are  allowed  to  keep  accounts.  In  connection  with 
the  bank  there  is  a  loan  office,  in  which  advances  equal 
to  three-fourths  their  value,  are  made  on  pledges  of  gold, 
silver  or  jewels. 

The  credit  of  the  bank  has  been  uniformly  well  sus- 
tained. In  1770,  as  we  have  mentioned,  the  bank  was 
affected  by  a  depreciation  of  the  German  rix-dollar.  Again 
it  overextended  its  loans  on  pledges,  and  Napoleon's  army 
once  took  its  money,  but  it  was  repaid,  and  the  bank  re- 
sumed operations. 

In  1853  it  was  found  that  the  distinctive  and  alto- 
gether peculiar  system  of  conducting  the  bank's  business, 
based,  as  it  was,  on  bar  silver,  lacked  convenience  for 
modern  business  methods,  as  no  facilities  were  given  for 
credits  or  discounts.  On  February  15,  1873,  the  German 
Government  required  all  banking  to  be  on  a  gold  standard. 
The  ancient  Bank  of  Hamburg  was  obliged  to  abolish  its 
bar-silver  standard  and  its  "  mark  banco,"  and  use  a  mone- 
tary system,  which  is  rix  money  in  marks,  150  marks  being 
equal  to  100  marks  banco.  The  bank  is  governed  by  five 
directors,  two  counsellors,  two  treasurers,  and  two  of  the 
principal  city  magistrates. 

The  first  bank  in  Sweden  was  established  by  a 
Swede  named  Palmstruck,  in  1656,  and  in  1668  it  became 
the  Bank  of  Sweden.  yTo  Sweden  is  given  the  credit* 
of  introducing  the  use  of  the  bank-note  in  Europe,  the  first 
one  having  been  issued  in  1658^  To  Sweden  is  also  given 
the  credit  for  great  advances  in  methods  of  banking  simi- 
lar to  our  present  methods^  The  circulating  medium  of 
Sweden  was  copper,  and  large  payments  were  made  with 
great  inconvenience.     To  remedy  this,  the   bank  received 

*  Palgrave's  "  Notes  on  Banking,"  p.  87. 


31 

the  copper  money  and  issued  bank-notes  against  it,  which 
passed  current  all  over  the  country.  Later  on  the  bank 
did  a  loaning  business,  and  nearly  suffered  disaster  in 
1752. 


Chapter  III. 

EARLY  ENGLISH  BANKING,   AND  THE   BANK 
OF   ENGLAND. 

I  In  Enjrland  banking  as  now  understood  had  no  ex- 

Cistence  previous  to  the  sixteenth  century.     The  first  pubUc 

institution  of  the  nature  of  banking  was   the   Exchequer, 


/ 


PENNY  OF  WILLIAM  I.,  1066-1087.  -P.  A.  X.  S. 

founded  by  William  I.,  which  is  still  in  existence,  modified 
in  form  from  a  repository  of  cash  to  an  office  of  accounts.  In 
the  reign  of  Henry  III.,  1 2 16-1 272,  we  are  informed  *  that 
money-lending  bankers,  chiefly  Jews,  were  settled  at  Ox- 
ford, where  shameful  practices  were  carried  out  in   dis- 


>ENNY  OF  \V1LLIA^5. 


counting  for  students,  forty-five  per  cent  being  a  common 
\  discount. 

On  the  expulsion  of  the  Jews  from  England  the 
business  of  private  banking  fell  into  the  hands  of  the  Lom- 
bards, sent  to  England  by  Pope  Gregory  IX.  some  fifty 
years  previously.  Their  business  was  undoubtedly  much 
the  same  as  is  at  present  carried  on  under  the  sign  whicii 


♦  Hilton  Price's  *'  Hand-book  of  London  IJiinkcrs," 

33 


mw  i 


ij 


I)  LTrONl 


ESTaBLlSHEDi  i 

I N  ieS9 

WS.LADD-W.MViASbDVV^      P^: 

ChPITAL§TOCK 

$  250.0CI0??;v^ 

^urplus  $  550.000^^? 
DO  A  GENERAL  BANKING  iTfi^tLdlR^N  -^-.^ 


^        mMf'     PARTNERS 

^  MmA.N.5CHU5TER.L0U15  HAX. 

JOHI*  COLHOUN,  JAMES  N,  BURNES,  S.A.WALKER, 


oM^^^^\>\e^°'       S^  FELIX  JT§ 


50 

PAID   IN   CASH  '^/OO.OOO. 


OFFICEiRStf^r 

/v.d.b.motter,prI^t 

LOUIS  HAX,  VICEPRES't. 
W.W.  MITCHEL 

s.a.w/\lKe 


Incohporated  fob  the  purpose  of  neootiating    loans   on 
Real  Estate    Issuing  Debenture  Bonos  «§  Acting 

TRUSTEE      FOR     ESTATES      6^     /nO/U/OUALS. 

W:W^ /MITCHELL 

---    -^.^EWERAL    MANA6ER 


W.D.B.M  OTTER, 

A.N.Schuster, 

^  „  ,  ,    WiNSLOW   JUDSON, 

S.A.Walker,  Louis  Hax. 


EngagAd  exclusively  In  the  business  of  furnishing  investors  with 
REAL  ESTATE  MORTGAGES  and  MUNICIPAL  BONDS. 

Has  on  hand,  at  all  times,  for  delivery  to  investors,  choice  guaran- 
teed Mortgage  Loans,  made  upon  well-Improved,  eligibly  located,  and 
Income-producing  Real  Estate  In  Missouri,  Kansas  and  Nebraska,  and 
never  exceeding  40  per  cent  of  the  value  thereof. 


T^EFEfiENCES 

Maverick  I^/at/onal  Bank    Boston  Msss.  Bank  of /\/0FfTH  America   /^"^i^ell  St.MY 
CoirriNENTAL  /National  ^ank  Chicago  III  Sank  of  Commerce  St.  Louis  Mo.  Armour  BFtos  Banking  Oo.  Kansas  City  Mo. 


they  carried  from  Lombardy,  the  three  g-olden  balls. 
They  gave  way  to  the  goldsmiths,  who  afterwards  be- 
came the  bankers  proper.  ■  Collins*  states  that  our  "  lum- 
ber" and  "  lumber-room  "  are  from  their  name  and  method 
of  storing  pledges  in  what  were  called  "  Lombard  Rooms." 


ELIZABETH'S  EAST  INDIA   HALF-CROWN,    1558. 

It  is  well  known  that  Lombard  Street,  the  banking  center 
of  London,  took  its  name  from  the  custom  of  Lombards  and 
foreign  merchants  assembling  there  twice  each  day. 

The  custom  of  depositing  money   with   goldsmiths, 
says  a  contemporaneous  writer,  grew  out  of  the  fact  that 


SHILLING  OF  JAMES  L,  1603,   FIRST  COINAGE. 

servants  could  not  be  trusted  as  cashiers.  In  the  hands 
of  goldsmiths,  persons  accustomed  to  handling  valuables, 
it  was  safe.  The  business  of  receiving  and  making  pay- 
ments, of  collecting  rents,  and  of  loaning  money  at  inter- 
est, was  a  natural  one,  and  soon  followed  the  first  practice 
of  acting  simply   as  treasurers   of  deposits.     Goldsmiths 


•  Collins'  "  Law  iintl  Practice  of  Banking," 


(3) 


34 

were  well-respected  members  of  the  community,  and 
record  of  their  holding-  high  ofifices  in  London  are  found 
in  the  reigns  of  Henry  I.,  Richard  I.,  and  Edward  I.  In 
1598  the  houses  in  Goldsmith's  Row  were  spoken  of  as 
being  very  beautiful.  These  were  destroyed  by  the  great 
fire  of  London,  after  which  the  goldsmiths  setded  in  Lom- 
bard Street.  Their  surplus  money  was  placed  for  safety  in 
the  Royal  Mint  in  the  Tower  of  London,  from  which 
Charles  L  took  ^200,000,  ruining  many  bankers  and 
forcing  them  all  to  consider  it  a  loan.  It  was  repaid  in  a 
few  months,  but  the  mint  never  recovered  its  credit. 


HALF-CROWN  SIEGE  PIECE  OF  CHARLES  L 

During  the  civil  war  which  marked  the  reign  of 
Charles  I.,  nearly  all  the  surplus  money*  of  the  country 
found  its  way  into  the  hands  of  goldsmiths,  many  of  whom, 
encooiraged  by  their  success  in  loaning  money,  subse- 
quently confined  themselves  exclusively  to  banking  oper- 
ations. The  first  "  run"  on  a  bank  is  recorded!  as  occur- 
ing  in  1667,  the  "run"  being  on  a  banker  named  Back- 
well,  and  becoming  general.  The  bankers  adopted  the 
expedient  of  requiring  twenty  days'  notice,  but  suffered  a 
shock  to  their  credit,  which  was  entirely  destroyed  in 
1672. 

♦Lawson's  "  History  of  Banking,"  p.  io6, 
fSamuel  Pcpy's  **  Diary,"  Vol.  II,  p.  67. 


35 


The  custom  of  depositing  surplus  money  in  the  mint 
had  given  way  after  its  robbery  by  Charles  I.,  to  that  of 
its  deposit  in  the  Exchequer.  Once  a  week  they  with- 
drew this  money,  with  which  to  meet  the  demands  of 
their  customers.     On  Jan.   2,    1672,  Charles  II.,  needing 


THALER  OF  WILLIAM,  PRINCE  OF  ORANGE,  1649 

money  very  badly,  on  the  advice  of  Sir  Thomas  Clifford, 
stopped  the  payment  of  the  money  in  the  Exchequer 
belonging  to  the  bankers.  The  suspension  of  this 
weekly  payment  (there  being  /i, 328, 526  on  deposit) 
involved  the  bankers  and  customers  in  common  ruin. 

In  an  attempt  to  satisfy  this  debt  Charles  gave  letters 
patent  to  the  various  robbed  bankers,  agreeing  to  pay  the 
principal  with  interest  at  6  per  cent.  I  A  list  of  these  cred- 
itors of  the  King  shows  that  Sir  Robert  Vyner,  Edward 
Backwell,  Gilbert  Whitehall,  Joseph  Horneby,  Jerefhiah 
Snow,  Bernard  Turner,  and  ^febrge  Snell  were  the  prin- 
cipal London  bankers  of  the  time.]  The  interest  was 
piid  a  few  years  and  then  suspended.  The  creditors 
were  obliged  to  prosecute  their  claim  to  the  court  of  last  re- 
sort, and  a  judgment  against  the  Crown  was  secured.  In 
1699  an  act  was  passed  which  provided  that  3  per  cent  per 
annum  should  be  paid  on  the  principal  sum,  but  that  the  in- 
debtedness might  be  cancelled  by  the  payment  of  a  moiety 


■J 


36 

thereof,  j(^664,26^.  This  indebtedness  is  the  first  item  of 
the  present  national  debt  of  England,  and  interest  is  still 
paid  at  3  per  cent  on  the  whole  amount. 

Of  the  old  London  bankers  whose  business  is  still 
carried  on  may  be  mentioned  Edward  Backwell,  wlio  was 
succeeded  by  Sir  Josiah  Child,  founder  of  the  present 
house  of  Child  &  Co.  In  1692  the  business  of  Middleton 
&  Campbell,  goldsmiths,  came  into  the  hands  of  James 
Coutts,  and  the  business  still  carried  on  by  Coutts'  bank 
was  thus  established.  We  are  told  that  the  use  of  pass- 
books by  banks  originated  with  Mr.  Coggs,  a  goldsmith, 
in  the  Strand.  Previous  to  their  use  it  was  customary  for 
depositors  to  call  regularly  and  check  up  their  accounts.\ 

Although  no  public  bank  was  established  in  England 
until  1699,  there  had  been  proposals,  petitions,  and  dis- 
cussions looking  to  the  establishment  of  a  public  bank,  so 
that  the  organization  of  the  Bank  of  England  was  but  the 
result  of  a  growth  of  public  sentiment,  and  the  increas- 
ing need  that  the  public  service  should  effect  a  large  loan. 
Two  schemes  devised  by  William  Paterson  for  the  estab- 
lishment of  a  national  bank  failed.  In  the  third  scheme, 
in  which  he  was  aided  by  Michael  Godfrey,  he  was  suc- 
cessful, and  an  act  incorporating  the  Bank  of  England 
received  the  royal  assent  from  William  III.,  on  Aprij_25, 
1694.  The  act  provided  that  ^100,000  should  be  annu- 
'aTTy~~appropriated  to  persons  making  a  voluntary  loan  of 
;i^ 1, 200,000  for  the  purpose  of  carrying  on  the  war  with 
France.  Commissioners  were  appointed  to  receive  the 
subscriptions  before  Aug.  i,  1694.  The  stock  was  trans- 
ferable, and  the  stockholders  were  called  collectively  the 
Governor  and  Company  of  the  Bank  of  England.  The 
Government  retained  the  power  to  pay  the  sum  at  twelve 
months' notice  after  Aug.  i,  1705,  upon  which  payment  the 


37 


corporation  should  cease.  The  corporation  was  allowed  to 
deal  in  bills  of  exchange,  to  buy  and  sell  bullion,  gold  and  sil- 
ver, to  lend  money  on  security,  and  its  bills  of  credit  were 
made  transferable.  The  corporation  was  forbidden  to  ad- 
vance money  to  the  Crown  without  permission  of  Parlia- 
ment. 

In  ten  days  the  whole  sum  of  ^1,200,000  was  sub- 
scribed, and  on  July  10  and  11,  officers  of  the  company 
were  elected.  On  Jan.  i,  1695,  the  bank  began  active 
operations  at  Grocers'  Hall,  Poultry.  Notes  of  ^20  were 
issued,  and  the  bank  commenced  discounting  mercantile 
-bills  of  exchange.  The  bank  was  authorized  to  advance 
money  on  pledges,  but  no  very  considerable  business  of 
this  kind  seems  to  have  been  done.  At  first  the  bank 
stood  in  high  credit  with  all  but  usurers,  with  whose  busi- 
ness it  seriously  interfered. 

Its  first  trouble  came  May  5,  1696.  Coin  had  been 
clipped,  filed,  and  counteifeited  to  an  enormous  extent, 
so  much  so  that  gold  guineas  of  full  weight  passed  cur- 
rent at  thirty  shillings.  It  had  been  the  bank's  practice 
to  receive  degraded  coin  at  its  nominal  value,  and  when 
the  great  issue  of  new  coin  began  the  bank  was  obliged 
to  pay  its  notes  in  fullvveighted  coin,  so  that  for  every  seven 
ounces  it  had  received  in  was  obliged  to  pay  twelve 
ounces.  Of  course,  this  caused  a  "run"  on  the  bJnk. 
Its  enemies,  the  private  bankers,  improved  this  oppor- 
tunity to  the  full  extent,  and  on  the  day  mentioned  they 
suddenly  presented  ^^30,000  in  notes  and  demanded  pay- 
ment. The  bank  suspended  cash  payments,  but  it  got 
through  the  trouble  by  good  management  and  Govern- 
ment assistance,  but  as  a  precautionary  measure  its  capi- 
tal stock  was  increased  by  vote  of  Parliament  on  Feb.  3, 
1697,   new   subscriptions  to  be  paid  in  exchequer  tallies 


38 

and  bank-notes.  The  life  of  the  bank  was  prolonged 
until  twelve  months  after  notice  given  after  Aug.  i,  1710, 
and  the  bank  was  given  a  monopoly  of  the  public  banking 
business. 

It  should  be  noted  that  a  bank  was  chartered  by  the 
Government  just  before  this,  its  advance  to  the  Govern- 
ment to  be  ^2,564,000,  but  it  had  been  impossible  to  se- 
cure subscriptions. 

The  Bank  of  England  was  authorized  to  issue  bank- 
notes to  the  extent  of  its  new  capital,  payable  on  de- 
mand and  secured  by  the  Government.  The  new  sub- 
scriptions amounted  to  ^^1,001,171,   los. 

In  1707  the  threat  of  invasion  by  Louis  XIV.  threw 
the  country  into  a  panic,  and  the  enemies  of  the  bank 
again  attempted  to  cause  its  downfall,  but  it  was  rein- 
forced by  the  Queen  and  several  nobles  and  came  through 
the  trouble  safely. 

In  1709,  the  Government  being  greatly  embarrassed, 
the  bank  was  appealed  to  again,  and  an  arrangement  was 
made  with  it  by  which  the  interest  which  the  Government 
was  paying  on  its  original  stock  of  ^1,200,000,  was  re- 
duced from  8  to  6  per  cent,  with  an  annual  allowance  of 
;^4,ooo  for  managing  the  debt ;  the  bank  was  to  advance 
^400,000  more  at  6  per  cent  interest ;  the  capital  stock  of 
;,^2,20i,i7i,  IDS,  was  allowed  to  be  doubled  at  a  price  of 
1 1 5  for  the  new  stock,  upon  which  the  bank  agreed  to  cir- 
culate ^2,500,000  in  Exchequer-bills,  and  to  receive  an 
allowance  of  6  per  cent,  one-half  for  interest  and  one-half 
for  repayment  of  the  principal,  and  that  no  more  Ex- 
chequer-bills should  be  issued  without  the  bank's  consent. 
The  life  of  the  bank  was  further  extended  to  August  i, 
1732. 


H.  R   CHURCHILL    PRESY 
W.  P.   N\OORES    V.   PRE^'t 
E.G.  SATTLEY   CASHIER 


i 


.-•^"^x-s^^ 


McCagne  Bros.,  Bankers, 


OLDEST  PRIVATE  BANKING  FIRM  IN  THE  CITY. 

THB    U*Ra«»T  CAPITAL    AND    HIAVUST   BU»IN»88  OF    ANY   PBIVATB    BAHKIH« 
HOUSB    IN    NaBRASKA. 


MAUI   mT«IIMT-»«AmH«    lNy«»T««MT«   POIl   IIOX-KMIMMT*.      WIUTB  IM. 


^J^» 


,j4*' 


S^' 


^V=e- 


.f 


eS»" 


Ae«*- 


.>J^^f 


\tv' 


A^'' 


,xA^' 


.«>» 


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39 

The  subscriptions  to  this  new  stock  were  paid  in  four 
hours  after  the  lists  were  opened. 

Although  the  act  of  1697  prevented  the  creation  of 
another  bank  by  Parliament,  private  joint-stock  banks  were 
formed,  and  any  corporation  and  company  could  perform 
a  banking  business.  To  cut  off  these  adventurers  an  act 
was  passed  that  during  the  life  of  the  Bank  of  England  no 
more  than  six  persons  could  be  united  to  do  a  banking 
business.  The  result  was  the  prevention  of  the  formation 
of  any  other  joint-stock  bank  than  the  Bank  of  England. 

In  1713,  upon  loan  to  the  Government  of  ;^ioo,cx)o, 
secured  by  Exchequer-bills,  the  life  of  the  bank  was  pro- 
longed to  twelve  months'  notice  to  be  given  after  August 
I,  1742,  and  the  payment  of  ;^  1,600,000.     In  17 16  the  life 


HALK-CROVVN  OF  GEORGE  I,  1720. 

of  the  bank  was  prolonged  indefinitely  until  three  annui- 
ties of  /"88,75i,  ;^ioo,ooo,  and  ;^76,83o,  and  other  debts, 
upon  which  an  annual  interest  of  5  per  cent  was  paid, 
were  extinguished.  In  1717  the  temporary  victory  and 
final  collapse  of  the  great  South  Sea  company  occurred, 
resulting  in  a  "run"  on  the  Bank  of  England  which  was 
artfully  met  and  overcome.  In  1722  the  reserve  fund 
known  as  the  "rest"  was  created. 

As  1742,  the  time  when  the  life  of  the  bank  was  to 
expirej  drew  nigh,  the  bank  advanced  ^1,600,000  to  the 


/ 


40 

Government,  and  its  capital  (enlarged  in  1720  to  ^8,959,- 
995  14s.  8d.  by  the  purchase  of  ^4,000,000  in  South  Sea 
company's  annuities)  was  increased  to  ;^9, 800,000;  its 
life  was  also  prolonged  until  twelve  months'  notice  to  be 
given  after  August  i,  1764.  An  attempt  was  made  to 
close  up  the  loose  ends  of  the  act  of  1709  by  an  amend- 
ment intended  to  make  the  bank's  monopoly  more  ex- 
clusive. 

In  1745  the  rebellion  in  Scotland  was  the  cause  of  a 
"run  "on  the  bank,  and  its  notes  fell  to  a  discount  often 
per  cent,  but  one  thousand  six  hundred  merchants  pledged 
themselves  to  support  the  credit  of  the  bank-notes,  and 
the  "run"  was  stopped.  In  1746  the  bank's  capital  was 
advanced  by  further  loans  to  the  Government  to  ;i^io,- 
780,000.  In  1759  notes  for  ;^  15  and  for  ^^  10  were  first 
issued. 

The  charter  of  the  bank  expired  in  1 764,  and  it  was 
renewed  upon  the  absolute  gift  of  £\  10,000  to  the  nation, 
and  a  loan  of  _;^  1,000,000  on  Exchequer-bills  for  two 
years  at  3  per  cent,  the  renewal  of  the  charter  being  un- 
til twelve  months'  notice  after  August  i,  1786,  In  1781 
the  charter  was  again  renewed  upon  the  advance  of 
;^2, 000,000  at  3  per  cent  for  three  years,  until  twelve 
months  after  August  i,  181 2,  and  the  payment  of  the  pub- 
lic debt.  In  1782  the  capital  was  increased  to  ;^i  1,642, - 
400. 

The  London  Clearing  House  was  established  in  1773, 
and  occupied  its  building  in  Lombard  street  in  1775,  but  it 
was  many  years  before  the  Bank  of  England  joined  it. 

f  Up  to  this  time  the  monopoly  of  the  bank  was  nearly 
complete.  Private  bankers  now  began  to  give  customers 
blank  check-books,  and  the  use  of  them  in  London  be- 
came  universal,   entirely   superseding  the   use  of  bank- 


41 

notes  and  circumventing  the  monopoly  of  the  Bank  of 
England. 

During  the  period  of  unusual  industrial  activity  which 
followed  the  termination  of  the  war  of  1713,  England  felt 
for  the  first  time  the  great  need  of  reliable  banks  of  issue 
other  than  the  Bank  of  England.  Its  monopoly  was  com- 
plete, and  to  provide  a  currency  small  shop-keepers  and 
irresponsible  persons  turned  bankers  and  inundated  the 
country  with  a  miserable  currency.  In  1775  an  act  pro- 
hibited bankers  issuing  notes  of  less  than  20  shillings. 
In  1777  the  minimum  value  was  made  ;^5. 

In  1782  the  extension  of  foreign  commerce  conse- 
quent on  the  conclusion  of  the  war  with  the  American 
colonies,  led  to  overtrading.  The  Bank  of  England  made 
unwise  issues.  Banks  which  had  sprung  up  like  mush- 
rooms all  over  the  country,  in  almost  every  hamlet,  issued 
currency  freely,  and,  strange  as  it  may  appear,  all  was  re- 
ceived without  hesitation.  The  actual  money  at  the 
command  of  the  bankers  became  ridiculously  small  for  the 
magnitude  of  operations  carried  on.  In  the  fall  of  1792 
the  revulsion  occurred,  and  bankruptcies  were  unusually 
frequent.  The  declaration  of  war  "with  the  Government 
of  France  under  the  Convention  was  the  last  blow  to 
staggering  credit,  and  the  financial  storm  which  swept 
over  England  carried  down  three  hundred  of  the  three 
hundred  and  fifty  bankers  doing  business. 

The  Bank  of  England  refused  to  support  credit  by 
meeting  the  demand  for  discounts.  The  Government 
came  to  the  rescue,  issued  Exchequer-bills  to  the  amount 
of  ;^5,ooo,ooo,  and  freely  loaned  them  to  struggling  insti- 
tutions.    Credit  was  immediately  restored. 

In  1797  a  combination  of  untoward  events  had  the 
effect  of  withdrawing  large  sums  of  specie  from  the  bank. 


42 

The  danger  of  invasion  by  the  French  became  the  cause 
of  numerous  "runs"  on  country  banks,  which  rapidly 
spread  to  London,  and  on  February  26,  1797,  the  Bank  of 
England  was  directed  to  suspend  cash  payments  until  the 
opinion  of  Parliament  could  be  taken.  The  bank  gave 
notice  that  its  affairs  were  most  prosperous  and  its  notes 
perfectly  secure.  Parliament  continued  the  suspension  of 
cash  payments  until  six  months  after  a  definitive  treaty  of 
peace  should  have  been  concluded.  The  result  of  this 
action  practically  made  the  bank-notes  legal  tender,  and 


BANK  OF  ENGLAND  DOLLAR,  1S04. 

for  the  first  three  years  after  the  passage  of  the  restriction 
act  they  were  on  a  par  with  gold  or  possessed  a  small 
premium.  From  1800  to  18 10  the  history  of  the  bank- 
notes was  one  of  gradual  depreciation,  until  in  18 10  the 
attention  of  Parliament  was  called  to  the  subject  and  a 
committee  of  inquiry  was  appointed  which  reported  that 
the  depreciation  was  due  to  over-issue,  and  recommended 
that  the  Bank  of  England  resume  specie  payments  within 
two  years.  The  recommendation  was  not  adopted,  and 
the  over-issue  continued  until  m  18 14  the  maximum  de- 
preciation was  25  per  cent. 

In  1813  the  number  of  country  banks  had  increased  to 
900,  but  in  the  three  years  following  240  of  them  stopped 


^uiF@e  yeaips   in  BusiNESsj 
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fiimafed^ewe  of  ^1|e  trjoj 

Vafuable    Features  oF  Modern         ' 

iCSt  T^suUs  on  JontinePolicies. 
Write  for  prospectus  of 

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Hls?  '-Policies  with 

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43 

payment,  and,  of  course,  their  paper  was  withdrawn 
from  circulation,  causing  the  Bank  of  England's  notes  to 
rise  nearly  to  par..  The  bank  was  directed  to  resume 
specie  payments  in  1823,  but  in  fact  it  did  resume  on  May 
I,  182 1.  No  legislation  was  had  to  prevent  the  unwise 
issue  of  notes  by  country  banks,  however,  and  in  1823 
such  issues  were  greatly  enlarged,  and  in  1825  the  amount 
in  circulation  was  estimated  to  have  been  60  per  cent  greater 
than  in  1823.  Speculation  became  hazardous  in  the  ex- 
treme, and  when  exchange  began  to  fall  in  1824  trouble 
began.     London  currency  was  contracted  in  September, 


GOLD  FIVE-POUND  PIECE  OF  VICTORIA. 


1825,  and  country  banks  began  to  fail  the  moment  they 
could  not  secure  accommodations  in  London,  In  less 
than  six  weeks  more  than  seventy  banks  were  carried 
down,  and  the  demand  for  gold  at  the  Bank  of  England 
was  so  great  as  to  have  drained  it  of  about  seven  millions 
of  bullion  before  the  outflow  could  be  stopped. 

The  crisis  in  London  lasted  one  week,  when  the  tide 
receded,  and  the  safety  of  the  bank  was  assured.  The 
exchange  turned  to  the  favor  of  England,  and  gold  began 
to  flow  toward  the  country.  The  Bank  of  England  then 
issued  notes  with  prodigal  abundance,  ;^5, 000,000  being 
issued  in  three  days.     The  next  week  uneasiness  in  the 


44 

country  was  again  apparent,  but  it  was  stayed  by  the 
bank's  issue  of  ;^500,ooo  in  ;,^i -notes,  and  by  the  first  of 
1826  credit  was  entirely  restored. 

In  1826  the  issue  of  less  than  ;^5-notes  was  prohib- 
ited in  England.  In  1833  the  charter  of  the  bank  was  ex- 
tended for  ten  years,  and  joint-stock  banks  of  issue  de- 
fined and  permitted.  In  1839  the  issue  of  the  Bank  of 
England  again  became  redundant,  and  but  for  assistance 
from  the  Bank  of  France,  the  bank  would  have  stopped 
payment. 


COPPER  FIVE  CENTS  OF  CEYLON. 


In  1844  and  1845  Sir  Robert  Peel  introduced  meas- 
ures into  Parliament,  the  passage  of  which  greatly  im- 
proved England's  banking  system.  The  power  to  issue 
notes  payable  on  demand  was  limited  by  making  the 
amount  of  such  notes  in  circulation  vary  with  the  amount 
of  bullion  possessed  by  the  issuer.  The  issuing  and 
banking  departments  of  the  Bank  of  England  were  en- 
tirely separated,  and  over  the  first  department  the  Bank 
was  given  no  control.  The  issue  of  the  Bank  was  made 
;^  1 4,000,000  on  securities,  and  it  was  allowed  to  issue  two- 
thirds  of  the  amount  of  notes  which  any  country  bank  was 
authorized,  but  failed,  to  issue.  Under  this  provision  the 
issue  had  increased  to  ^15,000,000  in  1875.     Above  this 


45 

sum  its  notes  can  only  be  issued  upon  the  receipt  of  an 
equal  amount  of  coin  or  bullion.  By  this  legislation  its 
notes  are  made  equal  with  gold. 

The  act  of  1844  also  provided  that  no  new  bank  of 
issue  should  be  established  in  the  United  Kingdom,  and 
that  the  maximum  issue  of  notes  by  the  existing  country 
English  banks  should  be  limited  to  the  average  amount 
which  they  had  in  circulation  during  the  twelve  weeks 
preceding  April  27,  1844.  No  other  bank  than  the  Bank 
of  England  was  allowed  to  issue  notes  in  or  within  sixty- 


THREE-SHILLXNG,  OR  GUILDER  OF  DEMERARA. 


five  miles  of  London.  The  charter  of  the  bank  was  ex- 
tended until  twelve  months'  notice  after  August  i,  1855. 

On  three  occasions,  in  1847,  1857  and  in  1866,  it  has 
been  found  necessary  to  authorize  the  Bank  to  issue  notes 
beyond  the  limits  of  the  act  of  1844,  in  order  to  restore 
credit  to  the  mercantile  community. 

Such,  in  brief,  is  the  history  of  the  Bank  of  England. 
With  it  is  closely  connected  the  history  of  banking  in 
England.  Branches  of  the  Bank  have  been  established  at 
Manchester,  Liverpool,  Birmingham,  Bristol,  Leeds, 
Plymouth,  Newcastle-on-Tyne,  Hull,  and  Portsmouth. 
The   capital   stock   of  the   Bank   is    /i4,553,ooo.     The 


46 

"Rest"  on  October  26,  1887,  was  ^3, 100,053,  The 
dividends  for  the  year  ending  October  5,  1887,  were  at 
the  rate  of  £g^/(  per  cent.  The  price  of  bank  stock  on 
October  26,  1887,  was  ^304.  On  that  day  there  were 
^24,210,255  in  circulation,  and  of  its  unemployed  notes 
there  were  ^^10,824, 670.  Of  gold  and  silver  coin  and 
bullion  there -were  ^20,092,263. 

h      0  ^ 


Chapter  IV. 
MODERN    EUROPEAN    BANKING. 

The  history  of  banks  in  England  other  than  the 
Bank  of  England  can  be  sketched  in  a  few  words.  The 
end  of  the  war  between  France  and  England  in  1815, 
was  soon  reflected  in  the  brightening  of  commerce,  but  it 
was  a  long  time  before  the  people  paid  attention  to 
banking  laws  or  facilities.  The  Bank  of  England,  to- 
gether with  private  bankers,  had  been  able  to  meet 
all  demands.  The  crisis  of  1825  showed  the  weakness 
of  private  banks,  and  the  necessity  of  public  banks. 
The  legislation  restricting  the  formation  of  joint-stock 
banks  in  order  to  protect  the  monopoly  of  the  Bank  of 
England,  has  already  been  mentioned.  In  1826  six  joint- 
stock  banks  were  registered,  and  seven  in  1828-9  and 
seven  more  in  1829-30.  In  1833  legislation  was  had  per- 
mitting joint-stock  banks  of  deposit  in  London.  In  1834 
the  prospectus  of  the  London  and  Westminster  Bank  was 
promulgated  by  James  William  Gilbart.  In  1836  the 
London  Joint-Stock  Bank  was  organized,  and  in  1839 
the  Union  Bank  of  London  was  established.  The  act  of 
1833  did  not  permit  the  banks  to  sue  or  be  sued  in  the 
name  of  their  officers,  but  a  later  Act  of  Parliament  cor- 
rected that  defect.  At  present  there  are  173  joint-stock 
banks  in  the  United  Kingdom,  the  banker's  license  be- 
ing ;^30  annually. 

The  restrictive  legislation  of  1 708  against  joint-stock 
banks  in  England  did  not  extend  to  Scotland.  The  Bank 
of  Scotland  was  organized  in  1695,  the  year  following  the 

47 


48 

establishment  of  the  Bank  of  England.  Its  original  cap- 
ital was  ^100,000,  and  it  had  a  monopoly  for  twenty-five 
years.  In  1774  its  capital  was  increased  to  ^200,000,  and 
at  several  other  times,  until  it  now  stand:j  at  ^1,500,000, 
of  which  ^1,000,000  is  paid-up.  It  is  the  only  Scotch 
bank  established  by  Parliament.  In  i6g6  it  began  to  es- 
tablish branches,  and  began  to  issue  notes  as  early  as 
1704.  It  was  a  bank  of  deposit  at  an  early  period  —  cer- 
tainly before  1729  —  and  interest  on  deposits  was  allowed. 
The  Bank  has  branches  in  all  important  Scotch  towns. 
Of  other  prominent  joint-stock  banks  in  Scotland  may  be 
mentioned  :  The  Royal  Bank  of  Scotland,  established  in 
1727,  and  now  having  a  capital  of  ^2,000,000,  and  num- 
erous branches ;  the  British  Linen  Company  Bank, 
established  in  1746,  with  a  capital  of  ^1,000,000; 
The  Commercial  Bank  of  Scotland,  limited  ;  the 
National  Bank  of  Scotland,  limited ;  the  Union  Bank 
of  Scotland,  limited  ;  and  the  Caledonian  Banking 
Company,  limited.  In  Scotland  the  system  of  giving 
cash-credits  in  limited  sums  upon  personal  and  other  se- 
curity, prevails.  Failures  in  Scotch  banks  have  been 
infrequent,  those  of  the  Western  Bank  and  the  City  of 
Glasgow  Bank,  being  notable  instances. 

The  Bank  of  Ireland  dates  from  1783.     Previous  to 
this  a  primitive  system  of  private  banking  prevailed,  gold- 


EARLY  IRISH  COIN  OF  DONALD,  KING  OF  MONAGHAN,  850  A.  D. 

smiths,  tradesmen,  and  general  dealers  being  the  bankers. 
The  earliest  reference  to  the  subject  of  Irish  banking  is 


iffliraiiL 


"V.. 


t- 


:-r1iS 


tCLi 


tit 


mm 


^»jt^ 


■,*.5 


M  ^.M\ 


3  3^ 


^y 


pommenced 
-r  ,     gusmess 


*^ 


a  (J, 


JohnD€  Lailtre.Prcst: 
rGWin^ton.YicePrest. 

J.F!R.Fo55Ca5bier. 
C£.BrQdcn^S5t.CQ5t7ier. 


(gflPlTAL   %  500.000. 

S\/P^L\/Z  $25,000. 


49 

an  act  of  the  Irish  Parliament  in  1709.  The  business  at 
that  time  was  entirely  uncontrolled,  and  any  person  could 
issue  bank  notes,  silver  or  copper  coin.  Upon  the  estab- 
lishment of  the  Bank  of  Ireland,  banking  privileges  vi^ere 
much  curtailed.  In  1797  the  suspension  of  cash  payment 
by  the  Bank  of  England  was  extended  to  Ireland,  and 
the  Bank  of  Ireland  greatly  increased  its  issue  of  bank- 
notes. Private  banks  sprung  up  all  over  the  country,  and 
they  also  swelled  the  currency  until  it  became  greatly  de- 
preciated. In  1804  there  were  fifty-seven  banks  in 
Ireland.  In  18 19  but  nineteen  remained,  and  in  1827 
there  were  but  ten  banks  in  all  Ireland.  In  1821  a  law 
was  passed  permitting  joint-stock  banks  to  be  organized, 
but  none  were  founded  until  additional  legislation  in  1824 
made  the  restrictions  less  objectionable.  Then  the 
Northern  Bank  of  Belfast  was  organized.  In  1825  the 
Provincial  Bank  of  Ireland  was  started  with  a  capital  of 
^2,000,000.  In  1834  the  Agricultural  and  Commercial 
Bank  of  Ireland  was  organized,  but  it  went  under  in  the 
crisis  of  1836.  In  1864  the  Munster  Bank  at  Cork  was 
established.  It  has  over  forty  branches,  and  pays  12  per 
cent  dividends. 

On  May  2  and  20,  17 16  the  French  Government 
granted  a  concession  to  John  Law,  a  Scotchman,  fur  the 
establishment  of  a  bank,  of  which  he  was  to  be  director 
and  the  Regent  its  protector.  In  June,  17 16,  it  began 
business  with  a  capital  of  6,000,000  francs,  and  was  au- 
thorized to  issue  notes  payable  at  sight  and  to  bearer,  to 
discount  paper,  to  receive  deposits,  to  make  collections 
and  payments,  and  do  a  general  banking  business.  The 
success  of  the  bank  was  assured  until  Law  and  his  Com- 
pagnie  d'  Occident  ruined  it  in  one  year.  It  was  fifty 
years  later  before  the  country  was  ready  for  another  credit 


'^'  Hi.    ^ 


^-'^mh.     :rZ7'      ^^ 


V 


50 

establishment.  In  1776  M.  Besnard  was  authorized  to 
establish  in  Paris  a  discount  bank,  and,  although  of  value 
to  the  business  world,  the  Convention   suppressed  it  in 


ijU 


HMIl 


y]iA 


^-^^4-M 


PENNY  OF  CHARLEMAGNE,  ISSUED  AT  BITURIGAS,  OR  BOURGES. 

1793.  So  soon  as  the  public  quiet  was  restored,  organiza- 
tions were  founded  which  in  1800  resulted  in  the  Bank  of 
France,  with  a  capital  of  45,000,000  francs,  which  was 
increased  to  90,000,000  francs  in  1806.  It  is  a  bank  of 
deposit,  discount,  and  circulation,  and  has  the  sole  power 
to  issue  notes.  Its  government  consists  of  a  governor 
and  two  deputies,  and  a  council-general  of  twenty  mem- 
bers. Bills  are  discounted  within  three  months  of  ma- 
turity, guaranteed  by  two,  or  generally  three,  approved 


CROWNS  OF  LOUIS    XIV.,   1643-1715  A.   D.,   KING   OF   FRANCE    AND   NAVARRE, 

KING  AND  DUKE  OF  BEARN. 

{The  cow  in  the  centre  is  the  standard  of  Beam.) 

signatures.  The  annual  dividends  are  limited  to  5  per 
cent.  All  other  profits  are  invested  in  consolidated  stock 
to  be  returned  to  the  stockholders  upon  the  expiration  of 


51 

the  charter,  in  1897.  In  1848  the  joint-stock  banks  which 
had  been  started  in  several  large  cities  were  consolidated 
with  the  Bank  of  France  as  branches,  and  their  issues  of 


THALER    OR    FIVE  SOL   PIECE    OF  ANNA  MARIA  LOUISA   (MADEMOISELLE), 
PRINCESS  OF  DOMBES,  1O73. 

notes  suspended.  Since  then  branches  have  been  estab- 
lished in  each  department.  In  1848  the  bank  suspended 
cash  payments,  but  resumed  them  in  1851.  The  Govern- 
ment is  largely  interested  in  the  Bank  of  France  and  they 
are   mutually  helpful.       In     1870     specie    payment   was 


FIVEFRANC  PIECE  OF  NAPOLEON  m. 


stopped,  but  through  all  the  troublesome  times  which  fol- 
lowed, the  management  of  the  bank  has  been  prudent, 
and  its  credit  is  restored. 

A  few  other  joint-stock  banks  exist  in  France,  but  do 
not  possess  the  power  to  issue  notes. 


52 

The  Royal  Bank  of  Prussia  was  established  June  i  7, 
1765,  as  an  exchange  and  loan  bank,  with  a  capital  of 
400,000  thalers. 


THALER  OF  DUKE  JOHN  ADDLPHUS,  HEIR  OF  NORWAY,  DUKE  OF  SCHLESWIG 

HOLSTKIN,  161 1. 

In  several  of  the  German  States  banks  were  founded 
under  laws  peculiar  to  each  one,  and  with  local  circulations, 
but  the  union  of  these   states   into  the  Empire  called  for 


FRANKFORT  THALER  OF  1638. 


^a  national  currency.  On  January  30,  1875,  an  act  was 
/  passed  which  met  this  demand.  The  Royal  Bank  became 
I  an  Imperial  Bank,  which  was  established  with  an  "  un- 
1     covered  "  or  unsecured  issue  of  250,000,000  of  marks,  with 


(^IHHtSOU  ^  «ORTH 


m^' 


^Ojf, 


-X" 


"vt^^v:-^  )    -^ 


\\\\ 


Q,e3t  Summer  Resorts 


■"^f-f^S 


Jfj 


y- 


^—.-^■"^ 


^    ^c^^*^    ^^ 


Nb^ 


X 


^r  ^^^^ 


i%^t 


w.  A  ..-^ 


-*  (apit/vlIioo.ooo. 

00,000. 


^       ,,  MhKES  AjPBC\AiTr  or 

p  f^RM   MOKTCAGE    LPA,NS    pOR,    NEW^NGLANO 

V  /   .O'^^"^^^   B^'^KS   TrUSJ  and  lNSURANeE(pMP/\NIES  ^ND  JNDlVIDUAl 
nyELyroRj.  B^'^S  and^Sell^  ^ity  and  (ounty  Rondq. 

R^EfER^ENGE  Of    fS<C  E  PT I  0  N /\L    v\lUE    A^N  D     f'|E>\NrN6 
Iht^^LLTHE       EASTEF^^J     StATES       ^  C^^ 


53 


a  rig-lit  to  increase  this  issue  if  one-third   the  increase  is 
represented  by  cash  in  hand   and  two-thirds  by  bills  not 

Thirty-two  other 


having-  more  than  three  months  to  run 


TlIALEll  OF  MARIA  THERESA,  A.  D.  171--. 

banks  were  permitted  to  have  an  "uncovered"  issue  to  the 
extent  of  1 35,000,000  of  marks,  and  to  exceed  their  author- 
ized issues,  subj'ict  to  the  payment  of  5  per  cent  interest 
on  the  excess  above  the  authorized  Hmit,  plus  the  cash  in 


THALER  OF  FREDBRICK  WILLIAM  III.,  OF  PRUSSIA. 

hand.  No  note  is  issued  less  than  100  marks,  and  no  new 
right  of  issue  can  be  conceded  except  by  a  law  of  the 
Empire.  The  State  itself  has  power  to  issue  1 20,000,000  of 
marks  in  state-notes  of  small  denominations.  There  are  but 
nineteen  note-issuing-  banks  in  the  Empire.  The  Empire 
shares  in  the  profits   and  superintends  the  conduct  of  the 


54 

Imperial  Bank  (Reichs  Bank),  and  it  is  entitled  to  erect 
branch  offices  in  any  part  of  the  Empire.  Its  capital  is 
•ibout  $30,000,000. 


GOLD  TWENTY  MARK  PIECE  OF  PllUSSIA,  1S72. 

/         The  Bank  of  the   Netherlands,  at  Amsterdam,  was 
I     first  chartered  in   1814,  with  the  Bank  of  England  as  a 
\    model,  with  a  capital  of  5,000,000  florins,  which  was  in- 
creased to  10,000,000  in   18 1 9,  and  to  15,000,000  in  1838. 
In  1863  it  was  re-chartered.     It  is  a  bank  of  deposit  and 
issue. 

In  1 81 4  the  National  Bank  of  Copenhagen  took  the 
place,  and  all  the  debts,  claims,  rights  and  privileges  of  the 
Rigs  Bank,  in  Denmark,  upon  the  cession  of  Norway  to 
Sweden.*  The  bank  was  obhged  to  maintain  the  notes 
of  the  Rigs  Bank  at  their  par  value,  and  to  do  this  it  was  re- 
quired to  collect  and  preserve  silver  coins,  bars  and  banco 
money  sufficient  to  redeem  the  notes  when  presented. 
The  proportion  of  cash  to  outstanding  notes  has  usually 
been  from  one-half  to  two-thirds.  The  bank  also  receives 
deposits  and  makes  loans  and  discounts.  It  was  required 
to  hold  silver  for  one-half  its  notes  in  circulation,  one- 
half  of  which  silver  must  be  of  the  coinage  of  Denmark,  the 
other  half  to  be  in  silver  bars  or  Hamburg  banco.  In 
1848  the  bank  was  permitted  to  substitute  sterling  money 
for  one-quarter  of  the  banco.  In  1854  the  bank  in- 
creased its  paper  money  from  /'a, 222,000  to  ^'2, 660,000, 
the  increase  being  secured  by  an  equal  amount  of  sterling 

•  Palgrave's  "Notes  on  Bunking,"  p.  112. 


55 

money  (one-quarter),  silver  bars,  (one-half),  and  banco, 
(one  quarter).  In  1859  it  was  allowed  to  increase  its 
paper  issue  by  the  purchase  of  silver  bars.  From  1853 
3  per  cent  interest  was  paid  on  money  loaned  to  the  bank, 
and  from  May  i,  i860,  the  State  surplus  has  been  left 
with  the  bank,  which  pays  interest  upon  it.  There  are 
several  private  joint-stock  banks  in  Copenhagen  with  no 
peculiar  features. 

In  1830  the  "Enskilda"  banks  were  first  organized 
in  Sweden.  They  are  private  banks  with  large  numbers 
of  partners,  and  issue  notes  payable  in  silver  or  in  notes 
of  the  Riks  Bank. 

The  notes  issued  are  based  on  sound  securities,  the 
Government's  banking  law  being  a  model  of  clearness 
and  cautiousness.  In  1884  the  Post  Office  Savings  Banks 
were  established  in  Sweden,  to  receive  money  under 
guarantee  of  State,  allow  interest  upon  it,  and  by  accumu- 
lating interest  and  capital,  hold  it  at  the  disposal  of 
depositors.  The  rate  of  interest  is  fixed  by  the  King, 
and  is  added  to  the  capital  at  the  end  of  each  year.  The 
smallest  amount  received  on  deposit  is  one  krona.  All 
funds  are  invested  in  the  Bank  of  Sweden. 

The  National  Bank  of  Austria  was  established  iifs 
Vienna,  in  i860,  with  a  view  to  restoring  the  credit  of  the  j 
Government.  It  has  the  exclusive  privilege  of  issue,  ana 
in  return  loaned  the  State  80,000,000  florins  without  in- 
terest. It  established  numerous  branches  in  different 
cities  in  the  Empire.  On  December  24,  1867,  the  Gov- 
ernment established  a  forced  currency,  and  consolidated 
its  debts  to  the  National  Bank  into  one  loan  of  $40,000, 
000,  and  re-organized  that  institution  into  the  Austro- 
Hungarian    Bank,   extending  its   charter   to    January   i,    / 


58 


The  earliest  Swiss  bank  of  issue  is  that  of  St.  Gail, 
which  dates  from  1836.  At  the  end  of  1869  there  were 
nineteen  issuing  banks  in  the  Swiss  Confederation. 
There  are  now  thirty-three  legalized  banks  of  issue.     In 


CROWN  OF  ZURICH  (CALLED  TIGURUM  BY  THK  ROMANS). 

1885  their  average  circulation  of  notes  was  $23,822,183. 
There  are  325  savings  banks,  the  deposits  in  1882  being 
$47,547,428.85.  There  are  also  162  other  banks  of  de- 
posit, mostly  of  a  private  nature. 

Although  the  oldest  existing  Italian  bank  dates  from 
1622  —  the  Monte  de  Paschi,  in  Siena  —  the  National 
Bank  of  Italy  has  a  history  dating  only  from  1850,  it  hav- 


TWO  LIRE  OF  THE  KINGDOM  OF  ITALY. 


ing  been  organized  by  consolidating  the  Bank  of  Genoa, 
founded  in  1844,  and  the  Bank  of  Turin,  founded  in  1847. 
At  its  organization  a  sum  was  to  be  paid  for  Govern- 
ment superintendence,   and   it  agreed  to  advance  to  the 


f   ORGANIZED   1883. 

W!i?.H.ATWOOD  GENL MANAGER 
/\.L.  AtWOOD  SEC.&TRES. 


FARM    AND  CITY 
INVESTMENTS     ^GHOOL^R 
/MUNICIPAL 

INVESTORS 
PROTECTED     _ 


BONOS 


Manley  F^ogers  Prej 
EH.  Barnard  v.  Pf^est 

C. /\/\.  Williams  cashier. 

D.A.  LUMBARD  ASST  CASH? 


JjT 


RTIOMflk 


(®Apilal  *i50.ooo.°-° 

joi/rpll^S*  25.000.°-' 


00 


DIRECTORS. 

H€NRY  J.  Kit  W.  k.  A\AY  ^r^  HYC 

J.T.5>\ITH       /AANUCY  1\Q6CH5      VM-J^OGEJ^? 


Burlington 
Route 

s:l.K8kw,r.r 


AT         Q  U   I  N  C  Y. 


5^-  Ip^J'S  N|INiNE\POLl^AND 

StP\ul^horj1ine  T-^T  LoUi  s 

/^lor\6  t^^  bar\ks  of  t1\e.l^is5isisiff  l.tl=\^ou^^\t_^\e  |aKe  ^^\ 
of  Iowa  /yJb  IV|ir\r\^8ota  \o  ft\e Summer  F^^ontS  of  tNe-Hor(hY. 

SPIRIT  l^AKE.I^KE  MINNETONKA, DETROIT I^KE.ST  PAUL. 

MINNEAPOLIS,  l^AKE  SUPEf\iOf\  POINTS,ano  YELLOWSTONE  PARK. 

The  tired  toiler  in  tl^c  South  car\  quickly  Find 
Rest,  Recpeation  <^^  Sport  by  taking  a  trip  over  this  Line 

/\PPLY    FOf^     INFORMATION 

TO  ^^oWARD  Elliott  g.ra.  i^eok,ui<.  iowa 


59 


State  a  sum  not   over    18,000,000  lire,  secured  by  a  de 
posit  of  public    stocks  or  treasury  bonds   bearing  3  per 
cent  interest,  or  less  if  the   market   rate  was  lower  than 


TWO  LIRE,  PlUi  IX. 


that.  Three  bank  seats  and  four  branch  banks  were  es- 
tablished, and  the  capital,  originally  40,000,000  lire,  is 
now  200,000,000  lire.  It  has  numerous  branches,  and  its 
circulation  is  national.  In  April,  1874,  the  Government 
restricted  the  right  of  issuing  bank-notes  to  six  banks  : 
The  National  Bank  of  Italy  ;  the  National  Tuscan  Bank, 
organized  in  1857;  the  Roman  Bank,  1850;  the  Tuscan 
Bank  of  Credit,  i860;  the  Bank  of  Naples,  18 16,  and 
the  Bank  of  Sicily,  1843.  This  law  authorized  the  Bank 
of  Naples  to   increase   its  capital,  by  1885,  to  48,750,000 


SILVER  FIVE  LIRE  OF  VICTOR  EMMANUEL  II. 

lire,  and  the  Bank  of  Sicily  to  12,000,000.  The  National 
Tuscan  Bank  had  a  capital  of  30,000,000  lire ;  the  Roman 
Bank,  15,000,000,  and  the  Tuscan  Bank  of  Credit,  10,- 
000,000.     By  this    law   these   six  banks   were  organized 


6o 

into  a  union,  which,  if  required,  should  furnish  the  Gov- 
ernment 1,000,000,000  lire  in  bank-notes,  but  by  a  law, 
passed  April  7,  1881,  this  union  was  terminated. 


GOLD  PIECE  OF  DEMETRIUS,  1580  A.  D. 

There  are  also  numbers  of  "  People's  Banks,"  credit 
societies,  "Agrarian  Banks,"  friendly  societies,  etc.,  the 
People's  Banks  increasing  very  rapidly. 

The  Imperial  Bank  of  Russia  was  founded  in  i860,  to 
regulate  the  issues  of  currency  and  aid  commerce.  Its 
capital  is  subscribed  by  the  Government,  and  it  is  managed 


DOLLAR  OF  NEW  GRENADA. 


by  a  committee   of  the  treasury.      Its  charter  was  to  run 
for  twenty-eight  years.     When   founded,  its  capital   was 


6i 


$11,875,000,  and  one  of  its  principal  aims  was  to  restore 
specie  payments.  In  1864  the  circulation  had  a  nominal 
value  of  $630,000,000,  based  on  a  specie  reserve  of  but 


DOLLAR  OF  BOLIVIA. 


$43,330,000.  In  1877-78  the  currency  was  greatly  ex- 
panded because  of  the  Turkish  war.  The  bank  enjoys 
the  sole  privilege  of  issuing  notes,  and  it  has  numerous 


ARGENTINE  CONFEDERACY. 

branches.     There  are  more  than  two  hundred  communal 
Russian  banks. 

Greece  has  two  modern  banks,  the  National  of  ^ 
Athens,  with  a  capital  of  $540,000,  and  the  Ionian  Banky/ 
at  Corfu. 

Savings  banks  were   known   in  Europe   as  early  as 
1765,  at  which  date  there  was  one  at  Brunswick.     In  1778 


62 

one  was  established  at  Hamburg  which  still  exists.  In 
1786  one  was  founded  at  Oldenburg,  in  1790  one  at  Loire, 
in  1792  one  at  Basel,  in  1794  one  at  Geneva,  and  in  1796 
one  at  Kiel,  in  Holstein.  In  England  they  had  a  rapid 
growth.     In  1799  Rev.  Joseph  Smith   put  into  execution 


DOLLAR  OF  CUNDINAMARCA. 


Jeremy  Bentham's  suggestion  by  the  establishment  at 
Wendover  of  a  "frugality  bank."  In  1801  Mrs.  Priscilla 
Wakefield  established  a  savings  bank  in  connection  with 
a  friendly  society,  and  others  followed  rapidly.  In  18 17 
so  numerous  had  they  become.  Parliament  passed  a  law  for 


MEXICAN  GLOBE  DOLLAR  OF  CHARLES  III. 

their  control.  Penny  banks  have  lately  been  established 
in  various  cities  of  Great  Britain  Savings  Banks  for  the 
army  were  established  in  1842,  and  for  the  navy  in  1854. 


WM.  M.  RICHARDS,  President. 


TO» 


GEO.  F.  SEWARD,  Vice-President. 

JOHN    M.   CRANE.    SECRETARY. 

ROBT.  J.  HILLAS,  Ass'T  Sec'y 


GEO   S    COE  -  -  .  -        Pres.  American  Exchange  National  Bank 

I.  s.'t.  strAnahan.       -         .        .        -        -        -        ^''"•.6''^1"^°°'1'S'' 

A    E    ORR Of  Dav:d  Dows  &  Co 

g!  G.' WILLIAMS, Pres.  Chemical  National  Bank 

I.  ROGERS  MA  JEWELL, P"  V. '^  •  ^j  ?i  "^  ?' •' 

A    B    HULL Retired  Merchant 

h'  a'  HURLBUT         -        ...       -        Pres.  of  Commissioners  of  Emigration 
r    d'vERMILYE, Pres.  Merchants'  National  Bank 

JOHN  L.  RIKKR, °J,i\^e*P-  ^-  ^' rJ 

A  S  BARNES Of  A.  S.  Barnes  &  Co 

j.'g'.  mccull'ough, P"'A4.\V  P»"^■"»  ^^"■S'r^y,  ^' 

V    S    MOORE         ....  -        -       -       .      Of  Moore,  Low  &  Wallace 

WM.'  M.  RICHARDS, =        ■•„"■      P'^.'^^n' 

GEO.  F.  SEWARD, •        -       •         Vice-PrestdenI 

214  A.NE)   216   BROADWAY. 


ffXl/W/RCtsTcCPRQlDfll 
O./^K.Tf//50K  VPR(3 


Tra/?5acl5a 


Directors 

R.feiJ\nKi:ftCt.        CMAHTinSON.      40Ht{,Y1t\L  ^ 

fl  HATFIELD.  M-STANTON.        Rj^.TRIMBM 

CB.CAMPBELL.        L.5IMPS0K.        CF-COLEMMIB 


Wh.?.WooD/n/\iV  CA5^{R 


"|t\tlAHV*A»^D 


I^ansasOV 


J 


Vpaki!-ik/->; 


63 

Several  railway  companies  maintain  savings  banks  for 
their  employes.  In  Norway  there  were  twenty-two  sav- 
ings banks  in  1840,  and  311  in  1880,  of  which  249  were 
rural.     In  Sweden  the  first  savings  bank  was  founded  in 


DOLLAR  OF  THE  EMPEROR  MAXIMILIAN. 

1813,     In   1840  there  were  fifty-eight,  and  in    1880  the 
number  had  increased  to  340,  of  which  252  were  rural. 


Chapter  V. 
EARLY  AMERICAN  BANKING. 

The  history  of  banking  in  the  American  colonies  be- 
fore the  revolution  is  very  obscure,  and  nearly  every  early 
mention  of  "banks"  is  apt  to  be  misleading.  The  word 
"bank,"  as  used  by  the  colonists,  meant  simply  a  batch,  of 
papej;  money,  issued  by  one  of  the  provinces,  or  in  rare 
instances,  by  a  company  or  association  of  individuals  more 
or  less  directly  authorized  by  law.*  The  modern  commer- 
cial bank  of  deposit  and  discount,  as  we  know  it,  did  not 
exist,  because  there  was  no  business  to  support  it.  There 
was  no  equivalent  for  the  "moneyed-class"  of  to-day.  The 
capitalist  had  not  yet  come.  With  few  exceptions,  men 
in  easy  circumstances  were  merchants  or  the  large  land 
owners  then  everywhere  called  "planters."  Men  of  prop- 
erty derived  their  wealth  from  commerce  or  agriculture, 
and  re-invested  their  gains  in  land  or  trade.  The  popu- 
lation was  widely  scattered,  and  the  number  of  those 
within  reach  of  any  one  business  center,  having  cash  to 
keep,  was  too  few  to  make  its  custody  and  handling  a 
profitable  business  for  any  one.  Each  merchant  or  planter 
kept  his  own  cash  in  his  own  strong  box  at  his  own 
house.  When  a  note  or  draft  was  presented  he  counted 
out  the  "broad  Joes,"  or  hard  dollars,  to  pay  it,  if  it  were 
during  one  of  the  rare  intervals  at  which  specie  payments 
were  in  vogue.  Oftener  the  payment  was  made  in  de- 
preciated paper  at  the  fluctuating  rate  of  discount,  at  which 
it  just  then  happened  to  be  current.     This  discount  varied, 

»  Gouge  II.,  9;  Bincroft,  III.,  3SS;  llUdrcth,  II.,  285. 


65 

with  time  and  place,  from  a  minimum  of  8  to  lo  per  cent 
to  a  common  rate  of  2  to  10  for  one.  In  extreme  cases 
this  depreciation  reached  1,000  of  the  debased  paper  for 
one  of  specie.* 

This  issue  of  a  depreciated  paper  as  an  expedient  for  the 
reHef  of  every  real  or  supposed  pecuniary  distress,  was  a 
prominent  feature  of  colonial  politics,  especially  in  New 
England  and  South  Carolina.  The  exigencies  of  Indian 
wars  and  numerous  futile  expeditions  for  the  conquest  of 
Canada  led  to  repeated  issues  of  bills  of  credit  by  the 
Governments  of  the  several  provinces.  The  prompt 
action  necessary  to  be  taken  in  getting  up  these  expe- 
ditions, made  it  impracticable  to  wait  for  the  levy  and  col- 
lection of  a  tax,  and  the  scarcity  of  capital  made  it  difficult 
or  impossible  to  borrow  money  through  channels  com- 
monly resorted  to  in  older  and  wealthier  States.  Bills  of 
credit,  made  legal  tender,  operated  as  a  forced  loan  with- 
out exciting  the  opposition  and  clamor  which  would  have 
followed  had  the  authorities  adopted  that  plan  without 
disguise,  or  had  they  openly  "pressed"  or  "requisitioned" 
the  needed  stores  and  material  in  kind.  Wasteful  and 
extravagant,  if  not  actually  ruinous,  as  such  measures 
always  prove  in  the  long  run,  the  exigencies  of  the  occa- 
sion seemed  not  only  to  justify,  but  imperatively  to 
demand  their  adoption  in  these  cases.  We  of  this  gen- 
eration have  seen  measures,  which  we  now  perceive  to  be 
of  at  least  equal  folly,  promoted  and  sanctioned  by  the 
most  trusted  statesmen  of  the  day  as  a  "military  neces- 
sity." Even  depreciation  enhanced,  in  some  respects,  the 
popularity  of  these  forced  issues,  as  it  afforded  debtors, 
always  a  large  class,  especially  in  a  new  country,  the 
"cheap  money,"  which   enables   them  to  discharge  their 

*  Gouge,  II.,  9;  Hildreth,  II.,  385,  341,  404,  467,   III.,  353;    Bancroa's  History  of  the  Consti- 
tution, I.     2iS-337. 


66 

debts  at  a  discount ;  and  the  rise  in  prices,  in  proportion 
to  the  depreciation  of  the  currency,  gave  a  fallacious  ap- 
pearance of  general  prosperity.  The  "scarcity  of  money," 
or  appreciation  of  currency,  which  followed  a  redemption 
and  withdrawal  of  a  portion  of  the  outstanding  paper,  was 
represented  as  a  public  calamity.  This  apprehension  of 
countless  imaginary  ills  attendant  upon  any  "contraction 
of  the  circulation,"  led  to  loan  schemes  devised  and  sus- 
tained by  that  restless,  unsettled  class,  numerous  in  every 
age  in  a  growing  community,  which  arrogates  to  itself  a 
special  claim  to  be  called  and  esteemed  "active  business 
men,"  whose  members,  under  the  guise  of  public  spirit, 
strive  to  make  the  capital  of  the  rich  and  the  labor  of  the 
poor  alike  subservient  to  their  own  selfish  schemes  for 
personal  profit.* 

The  earliest  issue  of  paper  money  in  North  America 
was  made  by  the  French  Governor-General  of  Canada,  in 
1685.  At  that  time  the  Indian  tribes  of  Central  New  York 
— the  redoubtable  Iroquois,  or  Five  Nations — were  the  most 
dangerous  foes  of  New  France.  The  English  colonies  were 
not  yet  strong  enough  to  attack  their  French  neighbors. 
The  Iroquois,  however,  had  made  repeated  incursions  into 
Canada,  capturing  and  destroying  Montreal,  and  threaten- 
ing the  French  settlements  with  complete  extinction.  In 
1685  the  Marquis  de  Denonville,  Governor-General  of 
Canada,  set  on  foot  an  expedition  against  the  Senecas, 
the  most  westerly  of  the  Five  Nations,  and  to  furnish 
funds  for  this  enterprise  issued  "card  money,"  which  was 
made  redeemable  in  bills  upon  France.f  In  1690  Massa- 
chusetts issued  the  first  paper  money  emitted  within  the 
present   limits    of  the  United   States,  of  which  we  have 


•  Hildrcth,  II.,  293-4. 
+  Hililre;h,  II.,  lao. 


67 

authentic  record.  In  December  of  that  year  the  expe- 
dition which  Sir  William  Phipps  had  led  against  Quebec 
■ —  the  first  serious  attempt  by  the  English  colonies  at  the 
conquest  of  Canada  —  returned  to  Boston,  having  made 
complete  failure.  There  was  no  money  in  the  treasury  to 
pay  the  troops,  as  the  authorities  had  relied  upon  the 
spoil  which  a  successful  expedition  was  expected  to  bring 
home,  to  meet  all  such  charges.  To  provide  for  this 
emergency  the  General  Court  resolved  :  that,  "Consider- 
ing the  present  poverty  of  the  country,  and,  through  the 
scarcity  of  money,  the  want  of  an  adequate  measure  of 


MASSACHUSETTS   CENT. 


commerce, "  bills  of  credit  in  notes  of  5  shillings  to  ^5 
should  be  issued  "to  be  in  value  equal  to  money,  and  ac- 
cepted in  all  public  payments."  The  first  issue  was  fixed 
at  ^7,000,  subsequently  increased  to  ^40,000,  equal,  as 
Massachusetts  money  was  then  rated,  to  $133,333.  Be- 
fore this  limit  was  reached,  however,  the  bills  sank  to  a 
discount  of  one-half.  To  raise  their  credit  they  were 
made  full  legal  tender.  In  1691  ^10,000  of  this  paper 
then  remaining  in  the  treasury  was  ordered  to  be  burned. 
In  1692  it  was  ordered  that,  in  lieu  of  interest,  the  bills 
should  be  received  by  the  treasury  at  a  premium  of  5  per 
cent  over  coin.  These  measures,  coupled  with  a  promise 
to  redeem  the  entire  issue  in  twelve  months,  sufficed  to 


68 

bring  this  paper  to  par  and  to  maintain  it  in  circulation  at 
that  point  for  twenty  years.* 

South  Carolina  was  the  first  to  follow  the  example  of 
Massachusetts.     In  1702,  being  then  the  most  southerly 


CAROLINA  CENT. 


of  the  English  colonies,  this  province  attempted  to  wrest 
Florida  from  the  Spaniards.  A  disastrous  siege  of  St. 
Augustine  ended  the  invasion  and  left  the  province  bur- 
dened with  debt.  Pleading  the  example  "of  great  and 
rich  countries,"  and  confident  that  "funds  of  credit  have 
fully  answered  the  ends  of  money,  and  given  the  people  a 


NEW  JERSEY  CENT. 

quick  circulation  of  their  trade  and  cash, "  the  colony  issued 
bills  of  credit  to  the  amount  of  ;^6,ooo.  This  was  to  be 
paid  off  within  three  years  by  a  tax  on  liquors  and  peltries. f 
In  1707  Rhode  Island  and  New  Hampshire  issued  their 
first  bills  of  credit  to  provide  means  for  taking  part  with 

•  Hildreth,  11.,  136;  Bancroft,  III.,  186;  HutchintOD  (Ed.  1795),  I..  356. 
t  Bancroft,  III.,  209 ;  Hildreth,  II.,  329. 


V 


■!i^^ 


9^ 


«  ne 


-•sii 


?fr 


I     ass 


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Gei^Am.Nat  8anh  8^*s 


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5r^ 


u» 


lu 


FINANCIAL  AGEMT 
•    ST.PAUL/\lNN.  • 
^INVE5tMENT5MAD[ 

FOR     NON  -^ 

RESIDENTS 


^ 


vx 


GUSTAV  WILLIUS  PRESIDEN 

WILLIAM  LINDEKE  VICE  PREJ 

JOSEPH  LOCKEY  CASHIER. 

THEO.  Dt^AZ  ASSTCASH 


'^o 


69 

Massachusetts  in  the  attempted  conquest  of  Acadia,  or 
Nova  Scotia  from  the  French.*  New  York,  Connecticut 
and  New  Jersey  made  issues  of  bills  of  credit  for  the  first 
time  in  1709  to  equip  their  quotas  of  troops  to  assist  in 
another  futile  attempt  at  the  conquest  of  Canada,!  and  in 


VIRGINIA   HALFPENNY,    ipj. 

1 7 13  North  Carolina  "paid,"  with  bills  of  credit,  the  ex- 
penses of  the  war  against  the  Tuscaroras,  which  ended  in 
the  expulsion  of  that  tribe  from  its  old  home,  to  wander 
northward  until  it  settled  in  western  New  York  as  the 
sixth  nation  of  the  Iroquois  Confederacy. f  Virginia  issued 
no  paper  until  1755,  when  bills  were  emitted  to  equip  the 
battalion  of  provincial  militia,  commanded  by  Washing- 
ton, which  accompanied  Braddock's  disastrous  expedition 


BALTIMORE  SHILLING,  1659. 


against  the   French  on  the   Ohio.§     As  will   be  related 
hereafter,    Pennsylvania    and    Maryland    first    authorized 


*  Hildreth,  II.,  259. 
+Ibid,  260. 
}  Ibid,  270, 
JIbidll.,  4Sa. 


70 

banks  —  issued  paper  money,  that  is  —  to  be  loaned  to 
their  people  as  currency.  There  is  no  record  of  any  con- 
siderable or  authorized  issue  of  paper  in  any  form  in 
Delaware  or  Georgia  until  a  later  date.  Thus  it  will  be 
seen  that  of  the  eleven  colonies  which  resorted  to  the 
issue  of  paper  money,  before  the  revolution,  in  the  case  of 
nine  of  them  it  first  appeared  as  an  adjunct  of  military  en- 
terprise and  of  military  defeat  and  disaster. 

South  Carolina  had  issued  bills  of  credit  in  1702  to 
meet  urgent  demands  upon  the  treasury,  in  a  desperate 
emergency.  In  171 2  this  colony  invented  a  modification  of 
the  original  plan,  which  was  quickly  imitated  by  most  of  the 
other  provinces.  "To  defray  the  expense  of  an  expedition 
against  the  Tuscaroras  and  to  advance  and  accommo- 
date domestic  trade,"  the  Legislature  established  a  "public 
bank,"  and  issued  ;^48,ooo  in  bills  of  credit,  called  bank- 
bills,  to  be  loaned  out  at  interest,  to  individuals  upon  real 
estate  and  personal  security.  The  loans  ran  for  twelve 
years,  to  be  repaid  one-twelfth  each  year.  In  this  case 
the  military  necessity  was  used  only  as  a  decent  pretext, 
and  when  the  next  bank  was  authorized  the  cloak  was 
laid  aside.  Although  made  a  legal  tender,  these  bank-bills 
were  early  discredited,  and  before  the  end  of  the  year 
were  current  only  at  a  discount  of  one-third  of  their  nom- 
inal value.  In  1716  a  second  "bank"  of  ^30,000  was 
ordered  to  be  loaned  out  on  the  same  terms  as  the  first. 
This  was  disallowed  by  the  Lords'  Proprietaries  of  the 
colony  in  England,  in  part  because  among  the  taxes  pro- 
vided for  its  redemption,  a  duty  of  ^^lo  per  head  was 
imposed  on  all  negroes  imported.  This  was  the  first  and 
principal  cause  of  discontent  with  the  Proprietary  govern- 
ment which  led  to  tumults  and,  finally,  in  17 19,  to  an  open 
insurrection  which  ended  in  the  complete  subversion  of 


71 

the  Proprietary  authorities.  A  revolutionary  convention, 
chosen  by  the  people,  assumed  the  management  of  affairs, 
and  appealed  to  the  British  home  Government  for  relief. 
The  English  ministry  instituted  proceedings  to  revoke  the 
Proprietary  charter,  proclaimed  South  Carolina  a  crown 
colony,  and,  in  1 7 2 1 ,  appointed  a  royal  Governor.  In  1722 
a  bill  was  introduced  in  the  Assembly  for  adding  ^120,- 
000  to  the  paper  money  of  the  colony.  Twenty-eight  of 
the  principal  merchants  of  Charleston  protested  against 
it,  and  in  their  remonstrance  alleged  as  the  chief  cause  of 
the  then  excessive  depreciation  of  paper  money,  "that 
every  legislative  engagement  for  recalling  the  various 
emissions  of  bills  had  been  broken  through  by  every  As- 
sembly. "  Provoked  by  this  plain  statement  of  unpalatable 
truth,  the  assembly  pronounced  the  merchants'  petition  "a 
false  and  scandalous  libel,"  and  sent  the  petitioners  to 
prison  for  a  breach  of  privilege.  The  Governor  not 
daring  to  interfere,  they  were  released  only  on  payment  of 
a  large  sum  by  way  of  fees.  The  bill  for  the  new  bank, 
though  passed  by  the  Assembly,  was  disallowed  by  the 
English  Government,  and  the  Governor  was." strictly  en- 
joined to  consent  to  no  new  law  for  creating  a  further 
paper  currency,  neither  to  any  act  for  diverting  the  sink- 
ing fund  already  established."  At  least  a  part  of  these 
disallowed  "banks"  seems  to  have  been  issued,  however, 
in  spite  of  the  prohibition,  for,  in  1725,  the  Assembly  re- 
solved that,  "Whereas,  the  circulating  bank  money  is 
already  reduced  to  ^87,000,  and  is  likely  soon  to  be  en- 
tirely paid  off,"  there  was  grave  occasion  to  apprehend  a 
scarcity  of  money.  To  escape  this  imminent  disaster  the 
Assembly  tacked  a  rider  on  the  annual  revenue  and  ap- 
propriation bill,  stopping  the  redemption  and  withdrawal 
of  the  bank  paper.     The  Governor  and  Council  proposed 


72 

to  strike  out  this  provision  ;  but  the  Assembly  denied 
their  right  to  amend  money  bills,  and  left  them  to  choose 
between  a  breach  of  their  instructions  and  a  failure  of 
supplies.  Next  year,  1726,  this  policy  was  followed  up 
by  a  bill  for  the  issue  of  another  bank,  which  the  Gov- 
ernor's Council  again  refused  to  pass.  The  planters 
then  entered  into  a  combination  to  pay  no  taxes,  alleging 
their  inability  to  do  so  unless  aided  by  the  issue  of  more 
bank  bills.  When,  in  1727,  a  conspicuous  member  of  this 
association  was  arrested  and  imprisoned,  the  Chief  Justice 
denied  him  a  writ  of  habeas  corpus  on  the  ground  that  his 
offense  amounted  to  high  treason,  and  was  not  bailable. 
After  an  acrimonious  controversy  in  the  Courts  and  in  the 
Assembly,  two  hundred  and  fifty  horsemen  entered  Charles- 
ton from  the  neighboring  country  and  compelled  his  libera- 
tion. The  Assembly  impeached  the  Chief  Justice,  became 
involved  in  aviolentquarrel  with  the  Governor  and  his  coun- 
cil, adjourned  themselves  of  their  own  motion,  and  when 
again  summoned,  refused  to  attend.  This  disorder  lasted  un- 
til I  730,  when  a  new  Royal  Governor  came  out,  and  a  new 
council  was  appointed,  from  which  were  omitted  all  those 
who  had  been  most  strenuous  for  obeying  the  royal  in- 
structions forbidding  further  emissions  of  bills.  The 
paper  money  party  thus  strengthened,  the  Assembly  sus- 
pended the  redemption  of  all  outstanding  bills,  and  voted 
another  issue  of  ^104,000,  both  of  which  measures  seem 
to  have  obtained  the  Governor's  assent.  In  1736  still 
another  bank  of  ;^  100,000  was  authorized,  to  be  loaned 
out  at  8  per  cent  like  the  previous  issues.  Before  this 
time  the  bank-bills  had  steadily  depreciated  until  they 
reached  a  discount  of  seven  of  paper  for  one  of  specie, 
at  which  the  currency  of  South  Carolina  remained,  almost 
without  variation,  until  the  eve  of  the  revolution.*     The 

•  Hildreth,  II.,  2Ssg2,  337S;  Bancroft,  IIL,  329;  Gouge,  II.,  78;  Holmes'  Anirals,  II.,  5S,  82. 


11 

case  of  South   Carolina   is   perhaps  the   only  instance  in, 
which  the  never-ending  controversy  between  the  advocates  j 
of  expansion  and  those  who  favor  a  contraction  of  the  cur-/ 
rency  led. to  a  complete  and  radical  change  in  the  form  oK 
government. 

As  South  Carolina  was  the  first  to  follow  the  exam-" 
pie  of  Massachusetts  in  issuing  bills  of  credit  to  meet  de- 
mands upon  the  public  treasury,  so  Massachusetts  was  the 
first  to  adopt  the  plan  devised  in  South  Carolina  of  manu- 
facturing paper  money  to  be  loaned  out  for  the  promotion 
of  trade.  As  we  have  seen,  the  earliest  issue  of  bills  of 
credit  was  made  by  Massachusetts  in  1690  to  meet  the 
cost  of  Phipps'  futile  attempt  on  Quebec.  The  next  resort 
to  the  same  device  in  this  province  was  in  1 711,  when 
bills,  amounting  to  ;^40,cx)o,  were  issued  and  paid  out  di- 
rectly by  the  Government  to  equip  the  New  England 
troops  attached  to  the  even  more  disastrous  expedition 
led  by  the  English  Admiral,  Sir  Hovenden  Walker, 
against  the  same  fortress.  In  1714  a  very  general  agree- 
ment had  grown  up  in  Massachusetts  in  favor  of  the  loan 
system  of  issuing  paper,  but  differences  arose  as  to  the 
precise  method  of  carrying  it  out.  The  more  adventurous 
and  speculative  element  proposed  a  private  bank,  to  be  in- 
corporated by  the  General  Court,  to  issue  bills  on  its  own 
credit  and  responsibility.  Others  preferred  the  indorse- 
ment of  the  colony  and  proposed  to  issue  colony  bills,  as 
heretofore,  to  be  loaned  on  landed  security  for  a  term  of 
years,  the  interest  and  one-twentieth  of  the  principal  to  be 
paid  annually.  If  this  scheme  was  adhered  to,  the  whole 
debt  would  be  paid  off  and  the  entire  issue  of  paper  re- 
deemed and  retired  in  twenty  years.  In  the  meantime 
the  interest  would  reduce,  by  so  much,  the  amount  neces- 
sary to  be  raised  by  taxation  for  the  current  expense  of 


74 

the  colony.  An  inconsiderable  party  opposed  all  bills  of 
credit,  and  argued  in  favor  of  a  specie  currency  and  a  real 
bank  of  deposit  and  discount;  but  these  were  stigmatized 
as  "capitalists"  and  "money  princes,"  and,  fijiding  the 
drift  of  public  sentiment  almost  wholly  in  favor  of  an  issue 
of  paper  money  of  some  sort,  were  soon  compelled  to  come 
to  the  support  of  the  provincial  issue,  called  the  "public 
bank,"  as  the  least  objectionable  of  the  two  plans  most  in 
favor.  According  to  Hutchinson,  the  party  favoring  the 
"private  bank"  was  composed  generally  of  persons  in 
difficult  or  involved  circumstances,  or  such  as  were  pos- 
sessed of  land,  but  had  no  command  of  ready  money,  or 
men  of  no  substance  at  all.  They  proposed  to  issue  bills 
which  all  the  members  of  the  company  promised  to  re- 
ceive as  "money,"  but  at  no  fixed  value  as  compared  with 
gold  and  silver.  The  Assembly  rather  favored  this  plan, 
owing  to  the  support  given  it  by  the  Boston  members,  but, 
after  a  long  struggle,  the  party  for  the  "public  bank"  pre- 
vailed in  the  General  Court  for  a  loan  of  _;^5o,ooo  in  bills  of 
credit,  which  were  put  into  the  hands  of  five  trustees,  to  be 
loaned  for  five  years  only,  to  the  inhabitants  of  the  several 
towns  in  the  ratio  of  their  taxes,  in  sums  of  ;^50  to  ^500, 
on  real  estate  mortgage,  at  5  per  cent  interest,  one-fifth  of 
the  principal  to  be  repaid  each  year.* 

Certainly  no  scheme  for  the  emission  of  bills  of  credit 
ever  was  more  carefully  devised  or  more  scrupulously 
guarded.  But  having  thus,  once  for  all,  demonstrated 
their  prudence  and  caution,  the  people  and  authorities  of 
Massachusetts  proceeded  to  give  full  swing  to  their  con- 
viction that  it  was  impossible,  in  a  state  of  colonial  depend- 
ence, to  maintain  a  metallic  currency,  and  that  it  was 
the   duty   of  Government   to    provide  a   currency   made 

*  Hatduoson,  IL,  1S7  et  seq.;  Bancroft,  III.,  3S6,  et  seq.;  Hildretb,  II.,  z^t-J. 


Hf 


Jj^t* 


P-^ 


jmi.& 


^nK 


Capital! 

^200,00(1 

^Directors. 

G.T.Barker. 

,     CN  Horace  Qark. 
JOHN  Wilson.      ^ 

^Chas  B- Allaire. 

alter^Barkef^ 

yi^ANK  Meyer. 

LiOT  Calendei^. 


G.X  BARKER.  President 

GhAS  ^.AlLAI[^E.   Vice  Pres/^c/7 j||fc 


^JSsssfe.. 


75 

and  kept  equal  to  the  requirements  of  trade  and  commerce. 
New  issues  of  bills  of  credit  were  made  for  the  payment 
of  ordinary,  current  expenses,  and  to  supply  deficiencies 
of  inadequate  tax  levies.  Provisions  made  for  the  pay- 
ment of  old  issues  were  repealed  or  ignored  and  new  is- 
sues made  with  no  present  purpose  of  redemption.  The 
efforts  of  the  Governor  and  Council  to  restrain  these 
issues  were  unavailing,  the  Governor's  consent,  or  con- 
nivance in  disobedience  of  his  instructions,  being  extorted 
by  withholding  his  salary.  In  1733  there  was  a  general 
complaint  throughout  the  four  New  England  colonies  of 
the  unusual  scarcity  of  money.  There  was  as  large  a  sum 
current  in  bills  of  credit  as  ever,  but  the  bills  having  de- 
preciated, they  answered  the  purposes  of  money  so  much 
the  less  in  proportion.  Massachusetts  and  New  Hamp- 
shire, restrained  by  the  instructions  of  their  Royal  Gov- 
ernors, had  not  issued  bills  to  so  great  an  amount  as 
Rhode  Island.  Connecticut,  being  an  agricultural  colony, 
with  fewer  traders,  did  not  so  much  feel  the  want  of  money. 
The  people  of  Massachusetts  complained  bitterly  that  Rhode 
Island  bills  should  circulate  among  them  to  take  away  their 
substance  to  be  employed  in  the  trade  of  the  sister  colony, 
and  many  wished  to  see  the  bills  of  each  colony  forbidden  to 
circulate  outside  the  limits  of  that  by  which  they  were  is- 
sued. In  the  midst  of  this  discontent  an  act  was  passed 
in  Rhode  Island  for  a  new  issue  of  ^100,000,  to  be  loaned 
to  its  people  for  twenty  years,  who,  it  was  argued,  would 
thus  have  it  in  their  power  to  add  that  sum  to  their  wealth, 
by  purchases  of  horses,  sheep,  lumber,  fish,  etc.,  from  the 
people  of  Massachusetts.  The  merchants  of  Boston 
thereupon  confederated  and  mutually  promised  and  en- 
gaged not  to  receive  any  Rhode  Island  bills  of  this  new 
emission.     Then,  to  provide  a  currency  to  fill  the  void  in 


76 

the  circulation,  which,  it  seemed  to  be  universally  agreed 
this  action  would  occasion,  a  large  number  of  Boston  mer- 
chants formed  themselves  into  a  company,  entered  into 
covenants  of  co-partnership  etc.,  chose  directors,  and 
issued  ^110,000  in  their  own  bills,  redeemable  in  ten 
years  in  silver  at  nineteen  shillings  to  the  ounce,  the  then 
current  rate,  but  being  about  three  times  the  true  or 
specie  value,  according  to  Massachusetts  standard,  or  in 
gold  in  the  same  proportion,  one- tenth  part  annually. 
About  the  same  time  the  Massachusetts  treasury,  which 
had  long  been  closed,  was  opened  and  the  debts  of  sev- 
eral years  were  paid  at  one  time  in  bills  of  credit.  To 
this  was  added  the  ordinary  emissions  of  bills  from  New 
Hampshire  and  Connecticut.  Then  some  of  the  Boston 
merchants,  tempted  by  the  opportunity,  broke  their  en- 
gagement and  received  the  Rhode  Island  bills,  an  exam- 
ple which  all  the  rest  were  speedily  forced  to  follow.  All 
these  issues  made  a  flood  of  paper  money,  before  which 
silver  —  then  standing  nominally  at  nineteen  shillings  to 
the  ounce  —  rose  to  twenty-seven  shillings  to  the  ounce, 
or,  rather  the  paper  which  stood  at  about  three  to  one  for 
specie,  sank  to  a  discount  of  four  and  one-half  of  paper 
for  one  of  specie.  Every  creditor  was  thus  defrauded  of 
nearly  one-half  of  his  just  dues.  As  soon  as  silver  rose 
to  twenty-seven  shillings  the  ounce,  the  notes  issued  by 
the  Merchants'  Association,  payable  at  nineteen  shillings  to 
the  ounce,  were  hoarded  up  as  too  valuable  for  every-day 
service,  and  no  longer  used  for  the  purposes  of  money.* 

As  early  as  1732  the  English  Government  began  to. 
instruct  the  Royal  Governor  of  Massachusetts  to  consent  to 
no  further  issue  of  bills  of  credit  to  remain  current  longer 
than  the  time  fixed  for  the  redemption  of  that  already  in 

•  Hutchinson,  II.,  340,  et  seq.;  Hildreth,  II.,  354;  Felt's  Mass.acliusetls  Currency. 


X*. 


n 

circulation,  the  last  of  which  would  mature  in  174 1.  It 
would  have  been  easy  to  raise  each  year,  by  taxation,  a 
sum  sufficient  to  pay  the  current  expenses,  and  to  redeem 
all  the  paper  maturing  during  that  year.  Instead  of  pur- 
suing this  course,  the  wisdom  of  which  so  plainly  appears, 
the  revenue  from  taxation  was  allowed  to  fall  below  the 
necessary  and  inevitable  expenditure,  so  that  not  only 
were  the  bills  maturing  allowed  to  go  unredeemed,  but 
new  paper,  to  fall  due  in  1741,  was  each  year  emitted.* 
As  the  time  for  the  payment  of  this  great  mass  of  paper 
drew  near,  and  as  hope  grew  fainter  that  the  policy 
against  new  issues  would  be  relaxed  and  the  promised 
payment  of  the  bills  in  some  way  evaded,  a  great  clamor 
arose  against  the  Governor,  who,  in  spite  of  all  attempts 
to  starve  him  into  compliance  by  withholding  his  salary, 
adhered  resolutely  to  his  instructions.  In  1740  it  became 
apparent  that  it  was  impossible  to  levy  in  one  year  a  tax 
sufficient  to  discharge  all  these  accumulations.  A  general 
dread  of  the  further  depreciation  or  entire  withdrawal  of 
the  currency  took  possession  of  nearly  the  whole  people. 
Hutchinson,  the  historian  of  Massachusetts,  did,  indeed, 
propose  to  the  General  Court  to  borrow  in  England  a 
sum  in  silver  equal  to  the  bills  then  extant,  and  therewith 
to  redeem  those  bills  and  thus  furnish  the  colony  with  a 
sound  currency  ;  the  repayment  of  the  loan  to  be  spread 
over  several  years  so  as  to  escape  burdensome  taxation 
in  any  one.  But  this  plan  was  rejected  in  favor  of  what 
was  called  the  land  bank,  or  manufactory  scheme.  It  be- 
ing held  that  the  royal  instructions  against  bills  of  credit 
were  no  bar  to  private  action,  the  projector  and  chief  advo- 
cate of  the  "private  bank"  of  17 14, hereinbefore  mentioned, 
"put  himself  at  the  head  of  some  seven  or  eight  hundred 


*  Hutchinson,  II.,  339. 


78 

persons,  some  few  of  rank  and  good  estate,  but  generally 
of  low  condition,  of  small  estate,  and  many  of  them  in- 
solvent. This  notable  company  were  to  give  credit  to 
/■  1 50,000  lawful  money,  to  be  issued  in  bills,  each  person 
to  mortgage  land  in  proportion  to  the  sum  he  subscribed 
and  took  out,  or  to  give  bond  with  two  sureties,  but  per- 
sonal security  was  not  to  be  taken  for  more  than  ;^ioo 
from  any  one  person."*  Ten  directors  and  a  treasurer 
were  to  be  chosen  by  the  company.  Every  subscriber  or 
partner  was  to  pay  3  per  cent  interest  on  the  sum  taken 
out,  and  5  per  cent  annually  of  the  principal.  He  that  did 
not  pay  his  dues  in  provincial  bills  might  pay  in  the  prod- 
uce and  manufacture  of  the  province,  at  such  rates  as 
the  directors  should  fix  from  time  to  time,  and  as  they 
should  commonly  pass  for  lawful  money.  It  was  claimed 
by  its  friends,  that  by  thus  providing  a  medium  and  cur- 
rency for  trade,  not  only  would  the  people  be  better  able 
to  procure  provincial  bills  to  pay  their  taxes,  but  trade, 
both  foreign  and  inland,  would  revive  and  flourish.  The 
principal  merchants  refused  to  receive  the  bills,  though 
they  had  a  large  currency  among  the  smaller  shop-keepers, 
mechanics  and  farmers.  To  lessen  the  temptation  to  re- 
ceive these  bills  of  the  land  bank,  a  number  of  leading 
merchants  agreed  to  issue  their  own  notes,  or  bills,  pay- 
able in  silver  at  the  end  of  fifteen  years,  much  like  the 
private  bank  of  1733,  and  dubbed  their  scheme  the  "sil- 
ver bank."  The  Governor  issued  a  proclamation  forbid- 
ding either  of  these  companies  to  issue  bills.  But  both  did 
make  large  emissions  in  defiance  of  the  prohibition.  The 
Governor  and  Council  then  applied  to  the  English  Par- 
liament, which,  early  in  1741,  declared  that  the  law  com- 
monly called  the  Bubble  Act,  passed  twenty  years  before 


*  Hutchinson,  II.,  353. 


79 

on  the  breaking'  of  the  South  Sea  bubble,  which  pro- 
hibited the  formation  of  unincorporated  joint-stock  com- 
panies with  more  than  six  members,  applied  to  all  the 
American  Colonies.  This  declaratory  legislation,  giving 
retroactive  effect  to  an  old  statute,  was  at  the  time 
cautiously  cited  as  "an  instance  of  the  transcendent  power 
of  Parliament."  It  was,  in  substance  if  not  in  form,  ex 
post  facto  legislation  of  a  specially  dangerous  and  pro- 
voking type,  and  became,  in  the  end,  one  of  the  strongest 
inducements  to  the  prohibition  of  such  laws  which,  not 
many  years  later,  was  incorporated  in  express  terms  in 
every  American  Constitution.  Both  the  banks,  or  com- 
panies, were  dissolved.  The  members  or  partners  were 
held  individually  liable  for  the  entire  mass  of  their  notes, 
not  at  the  depreciated  rates  at  which  they  had  been  issued, 
but  at  par  with  accrued  interest.  The  manufactory  or 
land  bank  scheme  especially,  the  affairs  of  which  remained 
unsettled  and  in  the  utmost  confusion  for  several  years, 
proved  extremely  ruinous  to  all  such  persons  concerned 
in  it  as  had  anything  to  lose.  Earnest  efforts  on  behalf 
of  these  unfortunate  speculators,  of  whom  his  father  was 
one,  first  introduced  into  politics  Samuel  Adams,  after- 
ward so  celebrated,  then  a  very  young  man,  a  recent 
graduate  of  Harvard,  designed  for  the  ministry  but  com- 
pelled by  his  father's  ruin  and  shortly  ensuing  death,  to 
adopt  a  more  active  life.  In  1741  a  new  royal  Governor 
was  appointed  who  construed  his  instructions  as  aimed 
only  at  preventing  a  further  emission  of  depreciated  cur- 
rency or  a  further  depreciation  of  that  already  afloat. 
Holding  that  it  did  not  matter  how  large  a  sum  in  bills 
was  current  if  only  their  value  was  secured,  and  that 
neither  the  spirit  of  his  instructions  required,  nor  the  cir- 
cumstances of  the  case  permitted,  the  literal  observance  of 


8o 

that  portion  of  them  which  directed  the  redemption  of  all 
outstanding  paper  in  that  one  year,  a  scheme  was  patched 
up  which  seemed  to  promise  at  least  a  brief  postponement 
of  the  evil  day.  The  General  Court  passed  and  the  Gov- 
ernor, after  obtaining  at  least  the  tacit  approval  of  the 
English  Ministry,  assented  to  an  act  intended  to  establish 
an  ideal  measure  of  value  in  all  trade  and  dealings,  let  the 
instrument  of  exchange  be  what  it  would.  This  declared 
that  all  contracts  should  be  understood  to  be  payable  in 
silver  at  6s.  8d.  per  ounce.  The  true  value  of  silver 
at  that  time  was  about  5s.  2d.  sterling  per  ounce,  but 
the  old  Pine  Tree  coinage  of  Massachusetts  had  been 


riNE  TREK  SHILLING. 


light  weight  and  6s.  8d.  of  that  currency  had  been 
coined  from  an  ounce  of  silver,  so  the  standard  now  fixed 
was  that  which  had  obtained  before  the  first  issue  of 
paper  and,  to  that  extent,  was  an  honest  one.  Bills  of  a 
new  form  were  issued  which  bore  on  their  face  a  promise 
to  pay  three  ounces  of  silver  for  every  twenty  shillings  of 
their  nominal  value.  These  were  made  a  legal  tender  for 
all  dues,  public  and  private.  It  was  also  provided  that  in 
case  they  should  depreciate  in  value  an  addition  should  be 
made  to  all  debts  equal  to  the  depreciation  of  the  currency 
from  the  time  of  contract  to  that  of  payment.  How  to 
ascertain  the  depreciation  from  time  to  time  was  the  great 
difficulty  in   framing  the  act.     To  leave  it  to  a  common 


PH^t 


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$  500,00000 

Ifrplus 

$  130,  000  op 


CHOICE   SECURITIES 
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0/  Sidckholders  & <^,(§>®(^(3>(m.^ 

^JOHN   |y\/\riGHELL    ^RFST.   ^     20^10  pRGUSON  ViCE  PrEST 

JOHN  OHNSTON- 


8i 

jury  never  would  do,  nor  could  the  impartial  integrity  of 
the  House  of  Representatives  be  trusted.  At  length  it  was 
agreed  that  the  eldest  member  from  each  county,  of  the 
Council,  a  body  answering  in  some  measure  to  our  pres- 
ent State  Senates,  should  meet  together  once  a  year  and 
ascertain  and  declare  the  depreciation.  But  the  measure 
afforded  no  real  relief.  The  counselors  appointed  to 
estimate  the  depreciation  seldom  had  the  firmness  to 
make  the  full  allowance  as  there  was  a  popular  outcry 
against  every  addition  made  to  the  fixed  discount.  No 
effectual  steps  were  taken  for  the  redemption  and  with- 
drawal of  either  the  new  issue  or  any  of  its  predecessors, 
save  those  made  by  the  private  companies.  Things 
went  from  bad  to  worse.  The  confusion  of  the  currency 
was  such  as  seriously  to  cripple  foreign  and  domestic 
trade.  The  depreciation  increased  and  financial  chaos 
seemed  to  be  near  at  hand.* 

The  authorities  of  Massachusetts  seemed  now  to  be 
possessed  of  a  spirit  near  akin  to  desperation.  For  the 
operations  which  resulted  in  the  capture  of  Louisberg  and 
conquest  of  Cape  Breton  in  1745,  and  for  the  several 
attempts  at  the  reduction  of  the  other  French  Colonies 
made  in  1746  and  1747,  this  province  issued  new  bills  of 
credit  to  the  nominal  value  of  more  than  /^2, 000,000. 
These  were  paid  out  by  the  treasury  at  an  average  dis- 
count of  eleven  or  twelve  of  paper  for  one  of  specie.  It 
becoming  apparent  that  either  redemption  or  repudiation 
must  be  faced  in  the  near  future,  the  General  Court  was, 
though  with  difficulty,  persuaded  to  levy  taxes  sufficient 
to  retire  a  considerable  portion  of  the  redundant  paper. 
In  1747,  on  the  application  of  the  agent  of  the  province, 
the  English  Government  granted  Massachusetts  an  allow- 


*  HUdreth,  U,  379  tt  seq  ;  Hutchinson,  IX,  153  et  seq. 


82 

ance,  of  ^180,000  for  the  partial  reimbursement  of  the 
expenses  of  the  conquest  of  Cape  Breton.  This  sum 
would  become  available,  in  specie,  in  1749.  Thomas 
Hutchinson,  the  historian,  who  was  then  speaker  of  the 
House  of  Representatives,  who  also  was  warmly  sup- 
ported by  Governor  Shirley,  perceived  in  this  a  favorable 
opportunity  for  abolishing  the  bills-of-credit  system  and 
substituting  a  stable  currency  of  silver  and  gold  for  the 
future.  About  ;^2, 200,000  in  bills  would  be  outstanding 
in  the  year  1749.  At  eleven  for  one  —  although  the  cur- 
rent rate  was  twelve  for  one  —  ^180,000  sterling  would 
redeem  ^^  1,980,000,  which  would  leave  but  ^220,000 
outstanding.  It  was  therefore  proposed  that  the  sum 
thus  granted  by  Parliament  should  be  shipped  to  the 
province  in  Spanish  milled  dollars,  and  applied  to  the 
redemption  of  the  bills,  so  far  as  it  would  serve,  and  that 
the  remainder  of  the  bills  should  be  drawn  in  by  a  tax  for 
the  year  1749.  This  would  dispose  of  the  bills.  For  the 
future,  silver  of  sterling  fineness  at  6s.  8d.  the  ounce  if 
paid  in  bullion,  or  in  milled  dollars  at  6s.  each,  should  be 
the  lawful  money  of  the  colony,  and  no  person  within  the 
province  should  receive  or  pay  bills  of  credit  of  any  of  the 
other  English  Colonies.  When  it  became  known  that  a 
bill  for  an  act  on  these  lines  had  been  introduced  in  the 
Provincial  House  of  Representatives,  a  great  clamor  was 
raised  against  it.  It  was  said  that  the  greater  part  of  the 
people  were  no  sufferers  from  a  depreciating  currency,  as 
the  number  of  debtors  was  always  greater  than  that  of 
creditors.  Even  those  who  were  for  a  stable  currency 
were  divided.  Some  argued  that  the  paper  might  be  so 
reduced  in  volume  as  to  be  fixed  and  stable  in  value,  and 
therefore  were  for  redeeming  only  so  many  bills  as  should 
be  agreed  to  be  superfluous.     Others,  including  many  of 


83 

good  standing  and  good  sense,  were  for  finishing  the 
bills,  but  in  a  gradual  way,  otherwise,  they  said,  a  fatal 
shock  would  be  given  to  business.  The  bills,  it  was  said, 
had  sunk  gradually  to  one-twelfth  their  original  value,  and, 
as  by  this  means  creditors  had  been  defrauded,  it  was  but 
reasonable  that  they  should  rise  gradually  that  justice 
might  be  done.  To  this  it  was  answered  that  the  credit- 
ors and  the  debtors  would  not  be  the  same,  so,  that 
instead  of  righting  one  wrong,  another  injustice  would  be 
done;  the  injury  being  the  same  when  one  is  obliged  to 
pay  more,  as  when  he  is  forced  to  receive  less,  than  is 
justly  due.  Others  were  for  exchanging  the  bills  for  sil- 
ver at  a  higher  rate,  the  Boston  representatives  favoring 
a  ratio  of  about  five  to  one,  which  would  have  given  an 
exorbitant  profit  upon  that  redeemed,  and  would  have 
left  more  than  half  the  volume  outstanding.  These  were 
the  objections  urged  by  the  most  reasonable  and  most 
intelligent.  The  strongest  opposition  came  from  the 
ignorant  and  the  interested  who  strove  to  impress  the 
people  with  the  contradictory  ideas,  first,  that  no  redemp- 
tion should  be  made  because  if  there  were  no  other 
money  than  silver  it  would  be  engrossed  and  hoarded  by 
the  rich,  and  that  the  poor  would  get  no  share  of  so  pre- 
cious a  commodity;  and  second,  that  if  the  bills  were 
redeemed  at  all  it  should  be  at  their  nominal  and  not  at 
their  actual  value.  After  debating  the  bill  for  many  weeks 
the  Assembly  reached  a  vote  upon  the  proposition  as  a 
whole,  and,  after  once  rejecting  the  bill,  finally  passed  it. 
After  this  favorable  action  the  measure  speedily  received 
the  sanction  of  the  other  branches  of  the  General  Court 
and  became  a  law  early  in  1750. 

The  indemnity  money  having  arrived  in  specie,  the 
paper,  amid  much  public  gloom  and  doubt,  was  redeemed 


84 

at  a  rate  about  one-fifth  less  than  the  current  value;  and 
for  the  next  quarter  of  a  century  Massachusetts  enjoyed 
the  blessing  of  a  sound  currency.  Resolved  to  drive  the 
other  New  England  colonies  into  the  same  measure  she, 
in  the  redemption  legislation  of  1750,  prohibited  the  cir- 
culation of  their  paper  within  her  limits.  Connecticut 
called  in  and  retired  her  bills- of  credit,  but  Rhode  Island, 
the  most  persistently  given  to  inflation  of  any  of  the  old 


CONNECTICUT  CENT. 


<;olonies,  refused  to  follow  the  lead  of  her  more  conservative 
neighbors.  Forgetting  former  constitutional  scruples  as 
to  the  extent  of  parliamentary  right  to  interfere  with  the 
domestic  affairs  of  the  colonies,  Massachusetts,  in  1751, 
applied  for,  and  obtained  an  Act  of  Parliament  prohibiting 
the  New  England  Assemblies,  except  in  case  of  war  or 
invasion,  to  issue  any  bills  of  credit,  for  the  redemption  of 
which,  within  the  year,  provision  was  not  made  at  the 
time  of  issue,  and  expressly  forbidding  that  any  such  bills 
should,  in  any  case,  be  made  a  legal  tender.* 

The  experience  of  the  other  colonies  issuing  paper 
money,  was,  on  the  whole,  very  like  that  of  Massachusetts 
and  South  Carolina.  In  some  of  them  matters  came  to  a 
worse  pass,  in  others  the  trouble  never  reached  so  grave 
a  stage.  The  expansion  and  depreciation  and  attendant 
disorder  were  greatest  in  Rhode  Island  and  least  in  Penn- 


*  Hutchinson,  II.,  391-396;  Hildrctli,  II.,  406. 


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85 


sylvania.  We  have  already  noted  the  circumstances 
under  which  Rhode  Island,  in  1707,  first  isr.ued  bills  of 
credit.  It  171 5  this  colony  authorized  its  first  "bank,"  on 
the  plan  of  South  Carolina  and  Massachusetts,  for  ^30,- 
000  to  be  loaned  out  for  ten  years.  In  1728  the  time  for 
payment  was  extended  to  thirteen  years,  and  then  ten 
years  more  were  allowed,  without  interest  beyond  the  first 
thirteen  years.  In  1721  a  second  bank  of  ^40,000,  was 
issued  and  loaned  out  for  five  years,  which  term,  in  i  728, 
was  also  extended  to  thirteen  years,  and,  at  the  same 
time  the  interest  made  payable  in  hemp  or  flax.      In    1733 


VERMONT  CENT,  iTSrt. 

a  new  bank  of  ^100,000  was  struck  off  and  loaned  out. 
Bills  of  credit  were  issued  for  current  public  expenditures 
which  should  have  been  met  by  taxation,  and  loan  banks 
were  authorized  on  any  and  every  pretext.  Those  who 
took  loans  after  the  expiration  of  a  portion  of  the  period 
for  which  each  bank  was  lent  out,  complained  that  they 
were  compelled  to  pay  back  within  a  time  shorter  than 
that  for  which  those  who  borrowed  when  the  bank  or  loan 
was  new  were  allowed  to  enjoy  the  use  of  the  money. 
These  and  other  applicants  for  loans  clamored  for  new 
banks  on  the  ground  of  "justice"  and  "equalty. "  All  who 
had  received  loans  were  heartily  in  favor  of  new  banks  as 
the  currency  depreciated  with  each  issue  and  they  were 
thus  the  more  easily  able  to  pay  back.  But  repayment  of 
these  loans  was  the  exception  rather  than  the  rule.     Titles 


86 

to  mortgaged  estates  were  found  to  be  in  such  confusion 
that  little  could  be  made  from  them.  The  legislature  was 
composed  too  largely  of  men  who  were  themselves  bor- 
rowers to  allow  any  effectual  measures  for  collection  to  be 
taken.  Foreclosures  were  rare  and  did  not  pay  expenses 
of  the  proceedings.  In  1750  the  ninth  loan  bank  was 
authorized  to  pay  a  bounty  on  manufactures  of  wool  and 
on  the  cod  and  whale  fisheries.  The  several  issues  were 
then  at  various  stages  of  depreciation,  "old  tenor"  stand- 
ing at  about  eight  or  nine  of  paper  for  one  of  specie. 
The  Act  of  Parliament  of  1751,  forbidding  further  issues  of 
paper  save  under  the  restrictions  noted  in  the  account 
given  above,  of  affairs  in  Massachusetts,  stopped  further 
issues  for  a  time.  But  the  quantity  of  paper  in  circulation 
was  so  large  that  the  shrinkage  continued,  and  when,  in 
1763,  the  courts  fixed  a  scale  of  depreciation  for  the  set- 
tlement of  old  debts,  it  put  the  Spanish  milled  dollar, 
worth  4s.  6d.  sterling,  at  £"]  in  notes,  a  ratio  of  about 
thirty  of  paper  for  one  of  specie.  Although  some  pre- 
tense at  redemption  was  made,  Rhode  Island  managed 
her  financial  affairs  wildly  and  recklessly  to  the  end  of 
the  colonial  period.  Her  policy  throughout  was  so  far  the 
reverse  of  business  like,  honest  or  honorable  that  her  rela- 
tions with  her  sister  colonies  were  least  amicable  of  the 
thirteen,  and  her  bills  of  credit  were  so  debased  as  to  be 
little  better  than  a  pest  to  herself  and  her  neighbors.* 

Pennsylvania,  as  we  have  said,  suffered  least  of  all 
the  colonies  which  adopted  the  loan-bank  system.  In  the 
rare  instances  in  which  this  colony  issued  bills  of  credit 
to  meet  demands  on  the  treasury,  the  sums  were  insignifi- 
cant and  the  bills  so  emitted  were  promptly  redeemed. 
The   loan   banks   were   also   small   in  proportion  to  the 

*  VVinsor's    Narrative  and  Critical  History,    V.,  and  aulliorilies  there  quoted;  Potter's  R,  I. 
Paper  Money;  Arnold's  R.  I.;  Phillip's  Coin,  and  Cont.  Paper  Money,  I.;  Hildreth,  U. 


8; 

wealth  and  population  of  the  province  and  were  strictly 
managed.  The  first  issue  was  made  in  1722,  of  ^15,000, 
to  be  loaned  on  the  security  of  real  estate  mortgages  or 
upon  gold  or  silver  plate  deposited  in  the  loan  office. 
The  loan  was  to  run  for  eight  years  at  five  per  cent,  the 
interest  and  one-eighth  the  principal  to  be  paid  annually. 
Loan  offices  were  established  in  each  county.  The  small- 
est loan  made  was  /lo  los.  and  the  largest  ^100,  unless 
bills  lay  in  the  offices  six  months  without  borrowers,  in 
which  case  ^200  might  be  lent  one  person.  The  bills 
were  a  legal  tender  and  the  penalty  for  refusing  to  receive 
them  was  confiscation  of  the  debt  or  forfeiture  of  the  com- 
modity. A  proportionate  penalty  was  imposed  on  any 
one  who  bargained  or  sold  any  article  for  a  less  sum  if 
paid  in  specie  than  for  paper.  In  1723  ^30,000  more  in 
bills   were  issued  to  be  lent  upon    the   same  terms.     In 


FRANKLIN  PENNY,  17S7. 

1730,  when  the  time  arrived  for  the  redemption  of  these 
issues,  an  Act  was  passed  increasing  the  amount  to  ^75,- 
000,  and  providing  for  reissues  sufficient  to  keep  that  sum 
in  constant  circulation.  This  was  consented  to  by  the 
English  proprietaries  only  on  condition  that  they  should 
receive  an  equivalent  for  any  loss  on  their  quit  rents  by 
the  depreciation  of  this  paper,  and  that  their  Governors 
should  be  strictly  instructed  to  consent  to  no  further  issue 
on  any  terms.  Benjamin  Franklin  wrote  an  essay,  pub- 
lished in  1729,  advocating  this  measure,  in  which,  from  a 


88 

just  and  clear  view  of  the  utility  and  effects  of  banks  of 
deposit,  he  deduces  an  argument  in  favor  of  the  radically 
dissimilar  loan  bank  then  in  vogue;  overlooking  the  fun- 
damental truth  that  the  value  of  a  paper  promise  to  pay 
depends  fully  as  much  on  the  certainty  and  reasonable 
nearness  of  the  time  at  which  it  is  to  be  paid,  as  upon  the 
sum  named  or  the  credit  of  the  promisor.  The  quantity 
of  paper  issued  being  thus  rigorously  limited,  the  Penn- 
sylvania bills  kept  their  value  so  well  that  they  were  com- 
monly used  as  bills  of  exchange  between  the  other  col- 
onies. This  prudent  reserve,  imitated  in  Maryland  and 
enforced  by  royal  instructions  in  New  Jersey  and  New 
York,  saved  the  paper  currency  of  the  middle  colonies 
from  that  excessive  depreciation  by  which  New  England 
and  the  Carolinas  were  impoverished  and  disgraced. 
But  the  average  discount  on  the  bills  of  even  these  prov- 
inces was  from  twenty  to  thirty-three  per  cent.  There 
was  not  a  single  colony  in  which  paper  money  stood  at  par.* 
Virginia  appears  to  have  issued  no  loan  bank,  nor  is 
there  any  record  of  the  use  of  bills  of  credit  until  1755, 
and  then  for  a  comparatively  moderate  sum  only.  Mary- 
land's first  and  only  loan  bank  was  issued  in  1733.  Con- 
necticut first  authorized  the  issue  of  paper  to  be  loaned  in 
the  same  year,  and  in  1751  followed  the  example  of  Mass- 
achusetts in  retiring  its  paper.  New  York  suffered  but 
little  from  the  loan-bank  craze,  but  its  government  made 
repeated  and  scandalous  issues  of  bills  of  credit  for  the 
payment  of  trumped-up  and  fictitious  claims  upon  the 
treasury.  New  Jersey,  in  1721,  created  a  loan  bank  of 
j(^40,ooo  to  be  lent  out  in  small  sums.  Another  was 
authorized  for  ^^20,000,  in  1728.  These,  with  a  few 
emissions  of  bills  of  credit  to  meet  temporary  deficiencies, 


*  Holmes,  II.,  I  lo  ct  seq, ;  I  (ildreth,  II.,  32 ' ,  342,  439,  4J1;  Spark's  Franklin,  II.,  253, 


I 


89 

and  for  the  equipment  of  troops  to  take  part  in  the  wars 
with  the  French  in  Canada,  seem  to  have  been  the  hmit 
of  the  issues  of  paper  in  this  province,  and  the  common 
rate  of  depreciation  was  about  two  of  bills  for  one  of 
specie.* 

*  Hildreth,  II.,  Gouife,  II,,  and  authorities  cited  heretofore. 


o 


Chapter  VI, 
THE  kEVOLUTIONARY  PERIOD. 

Banking,  in  any  sense  in  which  the  word  is  now  | 
understood,  had  its  birth  in  America  during  the  revolu-  | 
tionary  period  lasting  from  1775  to  the  adoption  of  the 
Federal  Constitution  in  1788.  Yet  the  financial  policy  of 
the  Confederation,  while  directed  by  the  Continental  Con- 
gress, as  well  as  that  of  nearly  every  one  of  the  thirteen 
states  during  the  same  time,  was  so  far  a  repetition  of  the 
worst  sins  of  the  colonial  period  as  to  make  legitimate 
private  banking  impossible  for  the  greater  part  of  this 
term  and  difficult  or  unprofitable  for  the  remainder.  Until 
the  constitutional  prohibition  of  bills  of  credit  and  of  legal- 
tender  paper  came  into  force  there  was  no  room  for  the 
modern  bank. 


KENTUCKY  CENT,  1791. 

It  was  estimated  that  just  before  the  war  of  the  revo- 
lution broke  out,  the  whole  "circulating  cash"  of  the 
thirteen  colonies  was  equal  in  value  to  about  $i  2,ooo,cxx),  ' 
or  perhaps  not  more  than  $10,000,000,  in  hard  money, 
and  that  the  proportion  of  paper  included  in  this  total  was 
from  one-half  to  three-fifths  of  the  whole.  So  the  total 
of  specie  may  have  been  anywhere  from  $4,000,000  to 


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E.K./\/ABl.EH  8e"  W.D.OOX  Tue;*?. 

FARM  M0FITGAGC5  /^^f  DCB^;iTUl\CB0/fD5 

BE«rRI6E.MB8. 


91 

$6,000,000.  Great  as  was  the  nominal  expense  of  that 
war  it  is  altogether  probable  that  this  sum  in  specie, 
together  with  what  would  have  come  from  abroad,  or 
even  with  what  actually  did  flow  in  from  French  and 
Dutch  loans  and  from  sums  paid  out  in  the  country  for 
the  support  of  the  British  and  French  armies,  would  have 
been  ample  for  every  occasion.  The  people  of  the  thir- 
teen colonies  were  then,  in  proportion  to  their  numbers, 
more  opulent  than  those  of  France,  and,  had  they  pos- 
sessed the  inclination  and  the  means  of  organizing  their 
resources,  easily  could  have  paid  the  price  of  their  inde- 
pendence without  resorting  to  a  disastrous  and  demoral- 
izing issue  of  paper. 

The  most  pressing  necessity  which  confronted  the 
second  Continental  Congress  when  it  convened  May  lo, 
1 775>  was  that  of  providing  money  to  carry  on  the  war 
which,  with  the  battle  of  Lexington,  fought  the  month 
before,  was  now  flagrant.  Having^  nq_authoritv  tojfixy 
taxes  directly,  and  unwilling  to  await^^he^  slow  process-«f 
a-tall  uporr~tlTe~stateF  for  money,  on  June  23,  in  con- 
formrty  with'the  suggestion  of  the  New  York  Provincial 
Congress,  ll  Was  voted  to~Tssue  $2,000,000  in  continental 
bills  of  credits  The  new  paper  did  not  get  into  circula- 
tion until  the  next  August.  Other  issues  followed  rapidly. 
For  about  one  year,  and  until  the  paper  in  circulation 
exceeded  $9,000,000,  the  bills  were  freely  received  at  their 
nominal  value,  no  distinction  being  made  in  ordinary 
transactions  between  continental  money  and  gold.  The 
liability  for  the  bills  was  distributed  among  the  colonies, 
subject  to  future  revision  in  the  ratio  of  the  supposed 
"number  of  their  inhabitants,  of  all  ages,  including 
negroes  and  mulattoes; "  and  were  to  be  redeemed  in  four 
annual  installments,  to  commence  at  the  end  of  four  years. 


92 

With  successive  issues  the  time  for  the  commencement  of 
redemption  was  extended,  first  to  eis^ht  years  and  finally 
to  eighteen  years  for  the  latest  issues.  In  February, 
1776,  the  first  issue  of  continental  notes  of  less  denomina- 
tion than  one  dollar  was  authorized.  In  1777,  when  con- 
tinental bills  had  sunk  to  one-half  their  nominal  value, 
Congress  denounced  every  person  who  would  not  receive 
them  at  par  as  a  public  enemy,  liable  to  forfeit  whatever 
he  offered  for  sale;  and  requested  the  States  to  declare 
the  notes  a  lawful  tender.  Massachusetts  had  already 
made  them  legal  tender  and  this  example  was  at  once  fol- 
lowed throughout  the  Union.  The  several  States  were  at 
the  same  time  invited  to  cancel  their  respective  quotas  of 
continental  bills.  They  all  had  irredeemable  currencies 
of  their  own,  and,  as  they  possessed  nearly  all  the  real 
powers  of  government,  under  the  Confederation,  their 
bills  were  less  insecure  than  the  continental  currency. 
Congress,  therefore,  urgently  needed  the  exclusive  right 
to  issue  paper  money,  if  by  bills  of  credit  the  war  was  to 
be  prosecuted,  and  to  that  end  recommended  the  States  to 
call  in  their  bills  and  to  issue  no  more.  This  request  was 
often  renewed  but  never  heeded;  so  the  notes  of  each  one 
of  the  thirteen  states  continued  to  compete  for  circulation 
with  those  of  the  Continental  Congress.  The  value  of  the 
continental  currency  was  further  impaired  in  1776  by  the 
ignoble  stratagem  of  the  British  Government,  under 
whose  authority  Lord  Dunmore  and  others  put  into  cir- 
culation in  Virginia  and  other  States  a  large  number  of 
"counterfeit  bills  manufactured  for  that  purpose  in  England. 
In  1779  this  counterfeit  money  had  become  so  largely 
circulated  by  the  agents  making  purchases  for  the  British 
army,  who  were  regularly  supplied  with  it,  that  Congress 
was  compelled  to  recall,  for  other  paper,  two  entire  emis- 


93 

sions  of  $5,000,000   each.     The    excessive    issue   was, 
however,    the  principal  and  all-sufficient    occasion  of  its 
depreciation.     As  we  have  seen  about  $9,000,000  of  it 
circulated  at  par  with  gold.     No  very  marked  signs   of 
depreciation  appeared  until  $20,000,000  had  been  issued, 
or  until  about  January,  1777.     The  ratio  of  depreciation 
was  then  one  and  one-fourth  of  paper  for  one   of  specie. 
Before  the  end  of  that  year  it  became  four  for  one.     At 
the    end   of   1778    it   reached   ten    for   one.      When,   in 
September,  1779,  the  ratio  had  fallen  to  twenty  for  one. 
Congress  determined  that  the  total  issue  should  not  exceed 
$200,000,000,  renewed  the  declaration  that  this  currency 
should  be  redeemed  in  full,  and  went  into  a  lengthy  argu- 
ment to  prove  that  the  States  had  the  ability  to  do  so,  but 
did   not   stick  to  its  resolution  to  restrict  the  issue.     In 
March,  1780,  these  issues   had  so  depreciated  that  their 
value  as  compared  with  specie  was  as  forty  to  one.     Con- 
gress now  required  the  whole  to  be  brought  in  for  redemp- 
tion at  its  market  value  in  coin,  and  authorized  the  emis- 
sion of  new  notes  bearing  interest  at  five  per  cent,  and 
payable  in  six  years  from  date  in  silver  and  gold.     These 
were  to  be  exchanged  in  proportion  of  one  dollar  of  the 
new  for  twenty  of  the  old.     During  1780  the  bills  sank 
to  one  hundred  for  one.     By  May  31,    1781,   they  had 
fallen  to  five  hundred  for  one,  or  two-tenths  of  a  cent  on 
the  dollar,  after  which   they  ceased  to  circulate  as  money. 
They  continued  to  be  bought  on  speculation  at  ratios  vary-^ 
ing  from  four  hundred  for  one  to  one  thousand  for  one  oy 
specie.     Massachusetts,  Rhode    Island  and  New  Hamp- 
shire redeemed  their  quotas  of  continental  currency  by 
receiving  it  for  taxes  at  the  rate  of  forty  for  one.     Con- 
necticut,   Delaware,  the  CaroHnas  and  Georgia   took  up 
none.     The    other   states  redeemed  parts  of  the  quotas 


94 

assigned  to  them  at  the  same  rate  as  Massachusetts.  The 
estimates  of  the  total  issues  of  continental  currency  vary 
astonishingly,  as  authorities  of  seemingly  equal  credit 
reach  amounts  as  widely  apart  as  $200,000,000  and  $350,- 
000,000.  The  last  figure  seems  to  be  nearest  the  truth, 
although  it  is  probable  that  no  more  than  $200,000,000  of 
it  was  in  circulation  at  any  one  time.* 

Beside  the  continental  paper  issued  by  Congress,  all 
of  the  States  put  out  bills  of  their  own.  In  some  States,  as 
Massachusetts  and  Pennsylvania,  these  bills  were  ulti- 
mately called  in  and  funded  at  their  nominal  value.  In 
others,  especially  at  the  South,  they  were  partially 
redeemed  by  the  issue  of  land  warrants.  The  remainder 
shared  the  fate  of  the  continental  currency,  being  either 
repudiated  outright  or  funded  at  an  immense  depreciation. 
No  State  made  such  profuse  issues  as  Virginia,  and  such  of 
her  bills  as  were  not  paid  in  for  land  warrants ^ — -and  enough 
of  these  bills  could  be  bought  for  five  dollars  in  specie  to 
purchase  a  warrant  for  seven  hundred  acres  of  land  —  were 
finally  funded  at  the  rate  of  one  thousand  for  one.  The  total 
issue  of  these  State  bills  of  credit  from  1774  to  1783  was 
upward  of  $210,000,000.  The  benefits  which  the  Conti- 
nental and  State  governments  derived  from  all  these  issues 
were  in  no  way  commensurate  with  the  burdens  which 
they  entailed  upon  the  people.  According  to  the  estimate 
of  Mr.  Woodbury,  secretary  of  the  treasury  from  1834  to 
1 84 1,  the  depreciation  and  subsequent  repudiation  of  the 
continental  currency  entailed  upon  the  country  an  aggre- 
gate loss  of  $196,000,000,  most  of  which  fell  upon  the 
friends  of  the  revolutionary  cause,  as  the  Tories  either 
declined  to  receive  that  paper  or  parted  with  it  as  soon  as 
possible.     Pelatiah  Webster,  writing  in  1780,  declared  that 


»  HUdreth,  III.;  Bancroft,  X.;  Gouge,  II.;  Essays  of  Pelatiah  Webster. 


95 

the  country  suffered  more  from  this  depreciated  currency 
than  from  every  other  cause  of  calamity;  that  it  killed 
more  men,  did  more  to  corrupt  our  choicest  interests,  and 
worked  greater  injustice  than  all  the  armies  and  artifices 
of  our  enemies.* 

"Shay's  Rebellion"  which  broke  out  in  New  England 
in  1785  and  1786  was  an  insurrection  of  debtors  who 
were  suffering  from  the  collapse  of  the  currency  and  the 
return  to  specie  values.  They  were  clamorous  for  paper 
money.  Although  no  concessions  were  made  to  the 
rioters  in  that  particular,  Massachusetts  did  pass  a  law 
delaying  the  collection  of  debts.  In  Rhode  Island  this 
movement  was  not  riotous,  but  took  the  form  of  a  new 
political  party.  The  paper-money  party  carried  the  elec- 
tions in  1786,  and  then  began  a  new  period  of  this  mania. 
Bills  amounting  to  ^100,000  (there  was  yet  no  federal 
monetary  system  or  coinage)  were  issued,  by  the  vote  of 
the  rural  towns  against  the  cities,  and  loaned  on  mortgage 
of  land  for  fourteen  years.  They  were  made  a  legal- 
tender  and  depreciated  at  once.  Merchants  refused  to 
receive  them  and  closed  their  shops.  The  farmers  retali- 
ated by  refusing  to  bring  food  into  the  cities,  and  a 
ridiculous  struggle  followed  which  brought  business  to  a 
stand-still.  The  paper-money  party  met  and  petitioned 
the  authorities  to  enforce  the  penal  laws  against  those 
refusing  to  receive  the  bills.  By  these  laws  cases  involv- 
ing a  legal  tender  took  precedence  of  all  others  and  must 
be  tried  within  three  days  after  complaint  made,  without 
a  jury,  and  without  right  of  appeal.  The  fine  for  a  first 
offence  was  from  £6  to  ^30,  and  greater  for  a  second. 
In  a  case  brought  against  a  butcher  for  refusing  bank 
paper,  five  judges  agreed  the  act  was  unconstitutional.     A 

*  Hildreth,  III. ;  Bancroft  X,;  Gouge,  II.;  Webster's  Essays.    Bolles,  I. 


96 

special  session  of  the  Assembly  was  called  and  the  judges 
were  summoned  to  assign  the  reasons  and  grounds  of 
their  decision,  and  subsequently,  four  of  them  were 
removed.  A  law  was  proposed  which  disfranchised  any 
one  who  refused  to  receive  the  paper  on  an  equality  with 
specie,  but  this  failed  to  receive  the  sanction  of  the  towns. 
Land  rents  were  paid  in  produce.  The  State  debt, 
incurred  during  the  revolution,  was  paid  off  in  the  depre- 
ciated currency.  The  question  of  the  ratification  of  the 
new  federal  constitution  coming  up  at  this  time,  the  paper- 
money  party  was  strong  enough  to  procure  its  rejection 
and  keep  Rhode  Island  out  of  the  Union  for  three  years. 
When,  in  1787,  numerous  suits  were  brought  in  the  courts 
for  the  redemption  of  estates  from  mortgages,  "the  suitors 
came  prepared  with  paper  money  in  handkerchiefs  and 
pillow  cases  to  redeem  their  lands."  The  money  con- 
tinued to  depreciate  until  1789,  wlien  the  legal-tender  laws 
were  suspended  and  the  depreciation  fixed  by  law  at 
eighteen  for  one.  The  people  of  Rhode  Island  were,  at 
that  time,  thoroughly  imbued  with  the  belief  that  money 
is  something  which  derives  its  value  from  the  authority  of 
government.  They  gave  to  fiat  paper  money  all  the 
countenance  and  support  which  public  opinion,  public 
favor  and  the  most  stringent  laws  in  its  aid  could  afford. 
The  result  was  wide-spread  pecuniary  disaster  and  finan- 
cial and  moral  disgrace  to  the  people,  while  the  State  came 
dangerously  near  to  extinction  through  partition  and 
annexation  to  Massachusetts  and  Connecticut.* 

In  May,  1780,  Robert  Morris,  George  Clymer  and 
other  leading  citizens  of  Philadelphia  associated  them- 
selves under  the  name  of  the  Bank  of  Pennsylvania,  and 
having  subscribed  a  small  capital  in  hard  money,  com- 


•  BoUes,  L;  Hildreth,  IV.,  209, 


>^^f\APiTAL  *  1 0O.O  O  O 


PLUS 
$50,000.  as 


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97 

menced  the  issue,  as  a  joint-stock  bank,  of  promissory 
notes,  which  were  employed  without  profit  to  themselves 
in  the  purchase  of  supplies  for  the  army.  Congress 
deposited  with  the  bank  a  considerable  sum  in  bills  of 
exchange  drawn  upon  John  Jay,  then  negotiating  a  loan  in 
Spain,  as  a  support  to  their  credit  and  indemnity  in  case 
of  loss.  This  bank  was  of  very  considerable  service  in 
procuring  and  forwarding  supplies.  It  continued  in  exis- 
tence until  after  the  end  of  the  war,  finally  closing  its 
affairs  toward  the  end  of  the  year  1 784.* 

^^^^-^On  May  17,  1781,  a  plan  for  a  national  bank  was  sub- 
mitted to  Congress  by  Robert  Morris,  the  principal 
provisions  of  which  were  as  follows :  The  capital  was  to 
be  $400,cxD0  in  shares  of  $400  each;  each  share  to  have 
one  vote  for  directors;  the  directors  to  be  twelve  in  num- 
ber, chosen  from  the  stockholders,  who  at  their  first 
meeting  were  to  choose  a  president  from  themselves;  the 
directors  to  meet  quarterly;  the  board  to  be  empowered 
from  time  to  time  to  open  new  subscriptions  for  the 
increase  of  the  capital  stock;  regular  statements  of  its  con- 
dition to  be  made  to  the  continental  superintendent  of 
finance,  and  it  to  be  at  all  times  subject  to  his  examination; 
the  notes  of  the  bank  to  be  payable  on  demand  over  its 
counter  and  to  be  made  by  law  receivable  for  taxes  and 
duties  in  every  State,  and  from  the  several  States  by  the 
treasury  of  the  United  States.  On  Maj^  26  Congress 
adopted  a  resolutiQlL_apjDroving"~~thTs  plan,  promising^o 
promote  and  support  the  same  by  such  ways  and  means, 
from  time  to  time,  as  should  appear  necessary  foijhe  ins^- 
tution  and  consistent  with  the  public  good ;  and  providing 
"that  the  subscribers  to  said  liank  shall  be  incorporated 
agreeably  to  the  principles  and  terms  of  the  plan,  under 


*  Hildrcth,  III.  310;  Doniet,  3. 

(T) 


lOO 


chusetts  on  February  7,  1784.  Its  original  capital  was 
$300,000,  and  the  charter  "allowed  three  dollars  of  cur- 
rency for  one  dollar  of  metallic  deposit. "  The  restrictions 
placed  upon  its  officers  did  not  permit  the  lending  of  more 
than  "$3,000  to  any  individual  at  one  time,  and  but  $5,000 
in  the  aggregate  to  any  one  borrower. "  Loans  could  be 
granted  for  no  more  than  sixty  days  upon  the  pledge  of 
merchandise,  bullion,  or  other  securities  as  collateral,  and 
for  thirty  days  only  on  personal  obligations  with  two 
sufficient  sureties,  "without  the  privilege  of  renewal  on 
any  terms."  It  continued  as  a  State  bank  until  1864, 
when  it  reorganized  under  the  national  banking  law,  and 
is  now  doing  business  as  the  Massachusetts  National 
Bank  of  Boston,  with  a  capital  of  $800,000. 

The  merchants  of  New  York  were  but  a  few  days 
behind  those  of  Boston  in  following  the  lead  of  their  com- 
petitors in  Philadelphia.  The  success  of  the  Bank  of 
North  America  stirred  up  the  speculative  element  in  New 
York,  and,  on  February  12,  1784,  a  proposal  was  adver- 
tised in  the  Packet  newspaper  for  the  establishment  of  an 
institution  to  be  called  the  Bank  of  the  State  of  New 
York,  with  a  capital  of  $750,000,  in  shares  of  $1,000  each. 
The  management  was  to  be  in  the  hands  of  a  governor 
and  six  directors,  who  were  to  serve  without  pay  until  the 
first  dividend  was  declared.  Two  of  the  directors  and 
the  governor  were  to  attend  constantly  at  the  bank,  and 
no  money  was  to  be  paid  out  without  their  consent.  The 
subscribers  were  to  pay  one-third  their  subscriptions  in 
"cash,"  and  for  the  other  two-thirds  "landed  security" 
was  to  be  given  by  mortgage  or  deed  of  trust.  No  lands 
outside  New  York  and  New  Jersey  were  to  be  accepted, 
and  all  lands  were  to  be  appraised  at  not  more  than  two- 
thirds  their  value.     The  directors  could  borrow  "to  the 


i 


COR.  LA    SALLE    S\ 
ASHINGTON     STS. 


f'P.VllLSON.(ASHIEf^. 
8.V)^.^T0N  E.A5S-r.(?/\SH  i^ 


700,000 

f^  W(j).Gi^ANrJis.  Finest. 

'^     C.R.FAJ\V\/ELLV^icfpREST. 

^  usi/\ess1raAsagted 


j^  "Prompt  Attention  Given  to 

(^ORI^ESPOr-^DENCE.      SoLlGlTED 


llections. 


TXTESTEI^iLT    X-i-^l^TlDS- 


W.  J.  BARNEY  &  CO. 


l^anward  Pub.  Co. 


ESTABLISHED  1851. 


Give  Special  Attention  to  Buying  and  Selling  Western  Lands,  Paying  Taxes  and  Perfecting  Titles. 


REFERENCES. 


ri<«t  National  Bank,  Chicago;  all  Bank*  I'edar  Rapids.,  Inna;  Ja)  Toiike.  122  South  Fourth  Str<>et,  PhlladelphiH,  and  S7  jrearf  eontlniiaiicd  iiu>iiir'<<s. 


» 


Cedar  Rapids  Improvement  Go.  Block. 


OFFICES  OF 

W.  J.  Barney  &  Co. 

—  ANH — 

Western  Mortgage  Company, 

27  TRIBUNE  BUILDING, 
CHICAGO. 


Capital,  Full  Paid,  $500,000.0[ 


-AND- 


Cedar  Rapids  Improvement 
Co.  6Iocl(, 

« 
CEDAR  RAPIDS, 

IOWA. 


WESTERN    MORTGAGK    COMPANV    (incorporated), 


JAMES  C.  YOUNG,  Presidmt. 


J.  A.  YOUNG.   Secretary. 


ALL  LOANS  BY  FIRST  MORTGAGE  ON  APPROVED  REAL  ESTATE 
SECURITY  AFTER  PERSONAL  EXAMINATION. 


Solicit  Correspondence  from  Investors. 

Loans  from  $100.00  to  $5,000,00  constantl]f  on  hand,  payable  In  PhiladelDliia  at  Bank  G,  D.  Barney  &  Co.,  122  Soutli  Fourth  Street. 

DEBENTURE  BONDS  FOR  SALE.  REFERENCES  GIVEN  EAST  AND  WEST. 


P<r\CAJ^TER,.FV«jt 


DDCOOLEXVfVwt 

PHILIP  potte:h.,s*c. 


IX  Pt^  EEMT-flEBEhTURE  Bonds 

JKn6  /^ortgajclffans  secured  by  a  first  [ien  upon 
Improved  F^eal  Estate  iq|ICB>7AsK/\  and  f/of^THCf^r{}(A>/5/\S 

rrincipalan^  Interest  Fully^uaran^eea  ana  pal3 
at  any  local  banKm  IheE/^STER^  St/\TCS 


0./(\.CAIfrrC!l.  D.DXOOUY^ 

r-  C.S.;^ONT60M£l^y. 

JppOTTEf^.  JJ.BftOwW. 
J.FF^ED  F^OGE^S, 

BOSTON. 


lOI 

extent  of  one-third  of  the  value  of  the  lands"  in  case  they 
found  it  necessary  to  increase  the  cash  resources  of  the 
bank,  but  no  further.  The  folly  and  danger  of  this 
scheme,  which  was  nothing  but  the  old  land  bank  with 
little  more  than  a  semblance  of  disguise,  was  quickly  per- 
ceived; but  it  served  to  hasten  the  action  of  those  who 
desired  a  really  sound  banking  institution  in  that  city. 

After  several  meetings  had  been  held,  a  number  of 
leading  business  men,  on  February  26,  1784,  agreed  upon 
a  plan  for  creating  a  bank,  to  be  called  the  Bank  of  New 
York,  under  which  an  organization  was  speedily  effected. 
This  provided  for  a  capital  stock  of  $500,000  in  silver  or 
gold,  to  be  divided  into  one  thousand  shares  of  $500 
each;  that  as  soon  as  five  hundred  shares  should  be  sub- 
scribed a  meeting  of  the  subscribers  should  be  held  to 
elect  a  president  and  twelve  directors;  that  at  all  meetings 
of  subscribers  or  share-holders  every  subscriber  or  stock- 
holder should  have  one  vote  for  each  share  of  stock  held 
by  him  to  the  number  of  four;  the  holder  of  six  shares  to 
have  five  votes,  for  eight  shares  six  votes,  and  for  ten 
shares  seven  votes;  but  no  stockholder  should  have  more 
than  seven  votes,  be  the  number  of  his  shares  ever  so 
great.  This  last  provision  was  afterward  amended  to 
allow  one  vote  for  every  five  shares  in  excess  of  ten.  A 
dividend  was  to  be  made  at  the  end  of  the  first  year,  and 
semi-annually  thereafter.  To  encourage  trade,  the  proprie- 
tors of  the  bank  fixed  the  rate  of  discount  at  six  per  cent. 
Sufficient  stock  having  been  subscribed,  officers  were 
elected  March  15,  1784.  Alexander  Hamilton  was  among 
those  chosen  on  the  first  board  of  directors  ;  and  the 
"constitution"  under  which  it  commenced  operations  was 
written  by  him.  As  none  of  the  newly-selected  officers, 
nor   any  other   trustworthy   person    in   New   York,  was 


I02 

familiar  with  the  methods  of  banking  business,  the  cashier, 
Mr.  Seaton,  was  dispatched  to  Philadelphia  with  a  letter 
of  introduction  from  Hamilton,  to  procure  the  desired 
information  from  the  Bank  of  North  America  and  to  pur- 
chase such  material  as  could  not  be  had  in  New  York. 
On  May  22  "the  president  and  directors  qualified  before 
His  Worship  the  Mayor  as  required  by  the  constitution"  of 
the  bank.  On  June  7,  the  subscriptions  having  been  paid 
in,  and  some  deposits  having  been  made,  notice  was  given 
that  the  bank  would  formally  commence  business  on  Wed- 
nesday, June  9,  1784;  and  that  applications  for  discount 
would  be  received  on  the  succeeding  Wednesday.  The 
following  rules,  to  be  observed  in  transacting  business  with 
the  bank,  were  also  published: 

"The  bank  will  be  open  every  day  in  the  year  except 
Sundays,  Christmas-day,  New-year's-day,  Good  Friday, 
the  Fourth  of  July,  and  general  holidays  appointed  by 
legal  authority. 

"The  hours  of  business  will  be  from  ten  to  one 
o'clock  in  the  forenoon,  and  from  three  to  five  o'clock  in 
the  afternoon. 

"  Discounts  will  be  done  on  Thursday  in  every  week, 
and  bills  and  notes  brought  for  discount  must  be  left  at  the 
bank  on  Wednesday  morning,  under  a  sealed  cover, 
directed  to  William  Seaton,  Cashier.  The  rate  of  dis- 
count is  at  present  fixed  at  six  per  cent  per  annum;  but 
no  discount  will  be  made  for  longer  than  thirty  days,  nor 
will  any  note  or  bill  be  discounted  to  pay  a  former  one. 
Payment  must  be  made  in  bank  notes  or  specie.  Three 
days  of  grace  being  allowed  upon  all  bills,  the  discount 
will  be  taken  for  the  same. 

"  Money  lodged  at  the  bank  may  be  redrawn  at  pleas- 


I03 

ure,  free  of  expense,  but  no  draft  will  be  paid  beyond  the 
balance  of  the  account. 

"Bills  or  notes  left  with  the  bank  will  be  presented 
for  acceptance,  and  the  money  collected  free  of  expense; 
in  case  of  non-payment  and  protest,  the  charge  of  protest 
must  be  borne  by  the  party  lodging  the  bill. 

"  Payments  made  at  the  bank  must  be  examined  at 
the  time,  as  no  deficiency  suggested  afterward  will  be 
admitted. 

"Gold  coin  is  received  and  paid  at  the  Bank  of  New 
York  at  the  following  rates : 


A  Johannes 

-         Weigh'g 

i8 

dwt. 

|>i6.oo 

A  half  Johannes       -         -          - 

(t 

9 

8.00 

A  Spanish  doubloon    - 

^         ce 

17 

15.00 

A  double  Spanish  Pistole  - 

ft 

8 

12 

gr- 

7.48 

A  Spanish  Pistole 

_         (t 

4 

6 

3-72 

A  British  Guinea       .         -         . 

<t 

5 

6 

4.64 

A  British  half  Guinea   - 

_        <( 

2 

IS 

2.32 

A  French  Guinea 

tt 

5 

4 

4-52 

A  Moidore     -       -         -         . 

_          « 

6 

18 

6.00 

A  Caroline        -         -         .         - 

f( 

6 

8 

4.72 

A  Chequin  -         - 

_          tc 

2 

4 

1.78 

"An  allowance  is   made  on  all   gold  exceeding  the 

above  standard  at  the  rate  of  three  pence  per  grain ;  on 

all  gold  short  of  the  above  weight  four  pence  per  grain  is 

deducted. 

"  By  Order  of  the  Board  of  Directors. 

"Alexander  McDougall,  Pres't." 

Both  the  Johannes  and  the  Moidore  were  gold  coins 
of  Portugal;  the  Johannes  being  so  called  from  the  figure 
of  King  John  which  it  bore.  The  Caroline  was  a  Ger- 
man coin,  and  the  Pistole  was  of  the  same  value  as  the 
Louis  d'or.  The  Chequin,  also  written  zeechin,  zechin,  and 
sequin,  was  a  gold  coin  deriving  its  name  from  La  Zeche, 


I04 

that  quarter  in  the  city  of  Venice  where  the  mint  was 
situated.  The  clipping  and  sweating  of  the  gold  coin  in 
circulation  had  long  been  practiced  in  the  colonies.  In  1 770 
the  New  York  Chamber  of  Commerce  stigmatized  it  as  "an 
evil  and  scandalous  practice,"  and  passed  a  resolution  to 
take  no  light  coin  except  at  a  discount  of  four  pence  for 
each  grain  it  fell  short  of  just  weight.  The  bank  expe- 
rienced much  trouble  from  this  source.  The  practice  was 
to  weigh  it  in  quantities  on  receiving  and  paying  out  gold, 
a  course  attended  with  many  difficulties  where  the  varie- 
ties of  coin  were  so  numerous,  but  for  which,  in  the 
absence  of  a  national  coinage,  it  was  not  easy  to  find  a 
substitute.  The  paper  currency  of  Pennsylvania  and 
New  Jersey,  which  circulated  largely  in  New  York,  was 
a  cause  of  endless  trouble  and  vexation  to  the  bank  and 
to  its  customers. 

Application  had  been  made  to  the  Legislature  of 
New  York  for  a  charter  incorporating  the  bank  before  it 
began  business;  but  this  was  delayed  and  operations  were 
begun  without  it.  As  in  Pennsylvania,  a  paper-money 
party  existed  in  New  York  which  persistently  opposed 
the  efforts  of  the  bank  to  obtain  a  charter.  The  direst 
evils  were  predicted  from  the  establishment  of  the  bank, 
and  it  was  maintained  that  the  only  remedy  for  existing 
and  threatened  evils  was  to  be  found  in  an  emission  of 
legal-tender  paper  by  the  State.  The  directors  were  pop- 
ularly charged  with  working  in  the  interest  of  British 
capitalists  and  traders,  and  with  refusing  discounts  a  few 
days  before  the  sailing  of  the  European  packet  that  they, 
personally,  might  profit  by  the  distress  thus  occasioned. 
The  bank,  it  was  contended,  had  destroyed  private  credit 
as  well  as  that  confidence,  forbearance  and  compassion 
formerly  shown  by  creditors  to  their  debtors.     The  enforc- 


I05 

ing  the  payment  of  notes  at  maturity  by  lodging  them  at 
the  bank  was  especially  disliked. 

A  strong  pressure  was  now  brought  upon  the  Legis- 
lature in  favor  of  an  emission  by  the  State  of  paper 
money,  to  be  made  a  legal  tender.  The  merchants  of 
New  York,  as  a  body,  opposed  the  scheme,  and  the  Cham- 
ber of  Commerce  forwarded  a  memorial  remonstrating 
against  the  passage  of  any  bill  to  that  effect,  and  setting 
forth  the  evils  which  would  result  from  such  an  issue. 
But  outside  the  city  there  was  a  general  belief  that  finan- 
cial relief  and  permanent  prosperity  would  come  only  with 
an  abundance  of  paper  money.  The  experience  of  the 
past  had  not  deterred  people  from  this  conviction,  and 
several  of  the  States  had  recently  issued  bills  of  credit. 
The  Legislature  passed  a  bill  in  1786,  authorizing  the 
emission  of  $200,000,  to  be  loaned  out  at  five  per  cent, 
"for  the  purpose  of  increasing  the  currency,"  and  to  be  a 
legal  tender  for  all  dues,  public  and  private.  This  was 
the  last  issue  of  bills  of  credit  by  New  York.  In  June, 
1787,  the  paper  money  issued  by  the  State  having  then 
obtained  a  considerable  circulation  and  being  largely 
depreciated,  the  Bank  of  New  York  decided  to  open 
accounts  and  make  discounts  and  payments  in  this  cur- 
rency, distinct  from  those  in  specie  or  the  bills  of  the 
bank.  This  was  continued  for  several  years,  discounts  in 
paper  being  done  on  Tuesdays  and  in  specie  on  Thurs- 
days. In  1791  the  bank  obtained  its  first  charter  from  the 
State,  and  on  May  2,  of  that  year  the  directors  named  in 
the  Act  of  incorporation  formally  accepted  the  charter, 
assumed  all  the  existing  liabilities  of  the  former  company, 
and  re-elected  the  former  officers.  Its  paid-up  capital 
was  then  $318,250,  with  deposits  amounting  to  $773,709, 
and  discounts  $845,940.     The  circulating  notes  outstand- 


io6 

ing  were  $181,254.  The  business  flourished  and  semi- 
annual dividends  were  regularly  declared;  that  for  the 
first  half  year  under  the  charter  being  for  seven  per  cent. 
During  the  same  six  months,  May  to  November  1791,  the 
discounts  were  $10,558,669,  and  the  total  cash  received 
was  $42,661,664.  These  figures  will  illustrate  the  extent 
of  mercantile  transactions  in  the  City  of  New  York  at  that 
time. 

/^       The  Bank  of  New  York  enjoyed  a  substantial  monop-    I 

V  oly  of  the  banking  business  in  that  city  for  fifteen  years.     1 

From   1784  to  1799  it  had  no  competitor  nor  rival,  save 

the  branch  of  the  Bank  of  the  United  States  which  during 


\ 


CHAIN  CENT  OF  1793. 

this  time  did  but  little  business.  It  had  obtained  its 
charter  with  great  difficulty  and  those  interested  in  its 
prosperity  could  scarcely  be  expected  to  look  with  com- 
placency on  any  att'impt  to  establish  an  institution  to 
compete  with  it.  "Neither,"  says  its  historian,  "did  the 
public  desire  any  additional  banking  facilities."  Had  any 
open  attempt  been  made  to  obtain  a  State  charter  for  a 
rival  concern,  the  older  bank  undoubtedly  would  have 
opposed  it  to  the  bitter  end.  But  suddenly  and  without 
premonition  a  formidable  corporation  made  its  appearance 
as  a  bank  of  deposit,  discount  and  issue  in  New  York. 
I  This  was  the  result  of  the  craft  and  sagacity  of  Aaron 
Burr.     In  the  spring  of  1 799  a  petition  was  presented  to 


VACt   VRt5\0ENT. 


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^QAtsDS  ^E6@TmTI£e        \   Offiiys  safe  and 
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THE  BEST  OF  f^EFEi^ENCEs  ;  ,n  mrm  MORTGAGES, 


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I07 

the  Legislature  asking  for  a  charter  for  a  company  with  a 
capital  of  $2,000,000  for  the  purpose  of  introducing  a 
supply  of  pure  water  into  the  City  of  New  York.  The 
prevalence  of  yellow  fever  during  the  summer  before  had 
been  largely  ascribed  to  the  use  of  contaminated  water,  and 
had  created  an  alarm  which  made  the  passage  of  any  bill 
to  improve  the  sanitary  condition  of  that  city  an  easy  mat- 
ter. Toward  the  end  of  the  session  the  bill  incorporating 
the  Manhattan  Company  was  accordingly  passed  by  the 
Legislature,  without  a  suspicion  on  the  part  of  the  great 
majority  of  those  who  voted  for  it  that  it  contained  a  grant 
of  banking  privileges  or  indeed  anything  else  but  a  fran- 
chise for  the  distribution  of  pure  water.  But  the  real 
purpose  of  the  scheme  was  soon  made  manifest.  While 
the  bill  had  been  on  passage  through  the  committee  stage 
it  had  been  suggested  that  the  whole  of  the  new  corpor- 
ation's $2,000,000  capital  might  not  be  needed  at  once 
in  constructing  water-works,  and  a  clause  was  added  pro- 
viding that  the  surplus  capital  might  be  "employed  in  the 
purchase  of  public  or  other  stocks,  or  in  any  other 
moneyed  transactions  or  operations  not  inconsistent  with 
'.  the  laws  and  constitution  of  the   State  of  New   York. " 

No  sooner  had  the  bill  become  a  law  and  the  stock  fully 

subscribed,  than  the  persons  interested  proceeded  to  carry 

i  out  their  plans  by  giving  notice  that  the  new  corporation 

would   begin    banking    operations  in   September  with  a 
;  capital  of  $500,000.     The  discovery  that  so  broad  a  fran- 

i  chise  had  been  so  incautiously  granted  occasioned  no  little 

\  excitement    and   indignation.     It   was    charged   that   the 

'i  Legislature  had  been  cheated    and  tricked    in  order   to 

i:  allow  Burr  and  his  friends  to  obtain  control  of  a  majority 

:  of  stock  of  the  company  and  power  to  use  its  capital  for 

their  own  purposes.     But  it  was  too  late.     The  Man- 


r 


io8 

hattan  Company  continues  to  this  day  to  be  the  leading 
state  bank  of  New  York,  as  distinguished  from  the 
national  banks,  and,  under  the  same  broad  clause  of  its 
charter  has  organized  life  and  fire  insurance  companies 
and  conducted  a  great  variety  of  other  enterprises. 

On  July,  6,  1865,  the  Bank  of  New  York  re-or- 
ganized under  the  national  banking  act,  taking  the  title 
of  "The-  Bank  of  New  York  National  Banking  Asso- 
ciation," which  it  still  retains,  with  a  capital  of  $2,000,000. 
During  the  first  hundred  years  of  its  existence  it  paid  to  its 
stockholders  dividends  amounting,  in  the  aggregate,  to 
910^  per  cent,  and  never  passed  a  dividend  except  in 
1837  when  it  was  compelled  by  law  to  do  so.* 

*  Domett's  History  of  the  Bank  New  York. 


Chapter  VII. 

THE     FIRST    AND    SECOND    BANKS   OF  THE 
UNITED  STATES. 

On  the  organization  of  the  government  of  the  United 
States  under  the  present  Constitution,  Alexander  Hamil- 
ton, Secretary  of  the  Treasury,  in  his  masterly  report  on 
the  finances  of  the  country,  made  to  Congress  December 
13,    1790,  recommended  the  establishment  of  a  bank  of 
the  United  States  and  opposed  the  issue  of  paper  money 
by  the  Government.     At  that  time  there  were  in  existence 
in  the  country  only  the  three  banks  — the  Bank  of  North 
America,   the   Bank  of  Massachusetts  and  the   Bank   of 
New  York,  with  an  aggregate  capital  of  about  $2,000,000 
—  of    whose    organization    sketches    have    been    given. 
There  was  no  provision  for  the  reception  and  paying  out 
of  the  bills  of  these  banks  by  the  Government  and  the 
supply  of  gold  and  silver  was  meagre.     The  Government 
daily  suffered  for  the  want  of  small  sums  in  ready  money. 
So  long  as  specie  only  could  be  used,  and  there  was  no 
national  bank,  the  delay  and  expense  incurred  in  trans- 
ferring money  from  place  to  place  were  burdensome  and 
vexatious.     Therefore,  it  was  argued,  a  national  bank  was 
imperatively  required,  which  would  not  only  serve  these 
purposes  but  many  others  as  well,  by  making  temporary 
loans  to  the   Government.     The   bill   for  the  bank  was 
debated  chiefly  on  two  grounds  —  its  constitutionality  and 
its  expediency.     It  passed  the  Senate  with  little  opposi- 
tion but  was  vigorously  resisted  in  the  House  of  Repre- 

109 


no 


sentatives.  On  February  8,  1791,  the  House  passed  it 
by  a  vote  of  thirty-nine  to  twenty.  Before  signing-  it, 
President  Washington  required  each  of  his  cabinet  officers 
to  submit  a  written  opinion  on  its  constitutionality.  The 
Cabinet  was  equally  divided.  Hamilton,  Secretary  of  the 
Treasury,  and  Gen.  Knox,  Secretary  of  War,  affirming  its 
constitutionality,  and  Jefferson,  Secretary  of  State,  and 
Edmund  Randolph,  Attorney  General,  denied  it.  But  the 
bill  became  a  law  by  the  President's  approval,  on  Feb- 


SILVKR  HALF-DOLLAR  OF  17^. 

ruary  25j  i2Q-L>  and  the  bank  at  once  went  into  operation. 
The  capital  was  fixed  at  $10,000,000,  divided  into  25,000 
shares  of  $400  each;  one-fifth  of  which  might  be  sub- 
scribed by  the  United  States,  but  no  other  subscriber 
might  take  more  than  1,000  shares.  The  subscriptions, 
except  that  of  the  United  States,  were  to  be  payable  one- 
fourth  in  specie  and  three-fourths  in  certain  six  per  cent 
stocks  of  the  United  States  or  in  other  three  per  cent 
stocks  at  half  their  nominal  value.  The  institution  was 
incorporated  under  the  style  of  "The  President,  Directors 
and  Company  of  the  Bank  of  the  United  States,"  to  con- 
tinue twenty  years,  expiring  March  4,  181  r.  The  bank 
was  authorized  to  hold  property  of  all  kinds,  not  exceed- 
ing, exclusive  of  its  capital,  $15,000,000.  Twenty-five 
directors  were  to  be  elected,  by  a  plurality  of  votes,  on 


Ill 


r 


the  first  Monday  of  January  in  every  year,  for  one  year 
only,  who  were  to  choose  a  president  from  their  own 
number.  It  also  provided  "That  no  other  bank  shall  be 
established  by  any  future  law  of  the  United  States  during- 
the  continuance  of  the  corporation  hereby  created,  for 
which  the  faith  of  the  United  States  is  hereby  pledged." 
The  bank  was  authorized  to  establish  offices  of  discount 


SILVER  DOLLAR  OF  1794. 

and  deposit  in  the  several  States,  and  to  issue  notes 
which  were  to  be  received  in  payment  of  all  dues  to  the 
Government.  It  was  authorized  to  sell  the  Government 
stocks  received  for  subscriptions,  but  was  forbidden  to 
become  the  purchaser  at  such  sales.  Of  the  capital, 
$5,700,000  was  reserved  for  the  chief  bank,  which  was 


SILVER  HALF-DIME,  17^-5. 


established  at  Philadelphia,  and  the  residue  of  $4,300,000 
was  to  be  divided  among  the  eight  branches  to  be  estab- 
lished in  the  principal  cities  of  the  Union.  The  entire 
capital  was  subscribed  and  applications   made  for  4,000 


I 


112 


shares  in  excess  of  the  whole  stock,  within  two  hours 
from  the  time  the  books  for  subscriptions  were  opened. 
The  enterprise  was  immediately  successful.  The  divi- 
dends averaged  eight  to  ten  per  cent  per  annum,  being 
much  below  those  of  the  Bank  of  North  America  in 
previous  years;  which,  in  the  words  of  a  distinguished 
writer,  "now  gradually  declined  as  other  banks  sprang 
into  existence. "     The  payment  of  the  Government  shares 


HALF  EAGLE  OF  1795. 

was  to  be  in  ten  annual  installments,  but  the  treasury 
department  found  it  very  difficult  to  comply  with  this 
requirement  as  to  the  entire  payments,  the  urgent  demand 
for  money  to  meet  other  pressing  occasions  being  con- 
tinuous for  several  years.  Neither  bank  nor  Government 
had  been  long  in  operation  when  the  need  arose  for  a 
temporary  loan  from  the  bank.  Congress  authorized  the 
treasury  to  procure  loans  to  pay  the  appropriations  of  the 


SILVER  DIME  OF  1796. 

year,  and  to  pledge  the  duties  on  imports  and  the  tortnage 
tax  for  their  repayment.  The  revenue  came  in  so  slowly 
that  its  anticipation  in  this  manner  could  not  be  avoided 
if  Government   expenditures   were    to  be  paid  as   they 


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113 

became  due.     This  policy  was  condemned  by  Albert  Gal 
latm,  but  was  generaHy  defended  on  the  ground   that  it 
was  a  well-known  practice   with  older  governments,    and 
hat  there  was  no  other  way  of  getting  the  money  impera- 
lively  required.  ^ 

^J.  \^-''7  ^""T'  °^''''""''  ^""^"^  ^'"^^  ^«  t''"^.  vvere  of 
three  kmds:  First,  those  made  in  anticipation  of  taxes  to 
meet  current  expenditures;  the  last  of  which  was  made  in 
I795.  Second,  the  sinking  fund  commissioners  were 
authomed  to  borrow  money,  not  exceeding  $1,000,000 
annually,  i„  anticipation  of  the  revenues,  to  pay  interest. 
Each  loan  of  this  kind  was  to  be  reimbursed  within  one 
year  after  it  was  made.  Third,  loans  were  also  founded  on 
a  pledge  of  the  revenue  to  meet  the  exigencies  of  a  spe- 
cific case  rather  than  for  a  general  purpose.  The  first  loan 
ot  this  kind  was  to  cover  the  expense  of  an  Indian  war      Of 


SILVER  QUARTER.DOLLAR  OF  ,796. 

Other  subsequent  loans,  one  was  to  provide  money  to 
ransom  American  sailors  held  in  slavery  by  the  Algerines. 
One  still  later  was  to  equip  and  maintain  the  ships  which 
earned  on  the  war  which  the  United  States,  first  of  all 
civilized  powers,  waged  against  the  Barbary  States  for 
the  protection  of  its  commerce  and  citizens,  rather  than  to 
pay  tribute. 

Between  the  years  1796  and  1802  the  United  States 
disposed  of  Its  stock  in  the  bank  at  a  net  profit  of  $1,137,- 

(8) 


\ 


114 

152.29,  equal  to  fifty-seven  per  cent  on  the  original  invest-  I 
ment.  In  August,  1791,  we  are  told,  United  States  Bank 
scrip  sold  for  195,  in  consequence  of  the  mania  for  specula- 
tion. In  September  of  the  same  year,  it  fell  to  no,  but  ral- 
lied, almost  at  once,  to  145.  The  last  sales  of  its  stock  on 
Government  account,  in  1802,  were  made  at  145.  It  was  a 
successful  and  prosperous  enterprise  from  first  to  last. 

But,  unfortunately  for  the  bank,  during  the  entire  | 
term  of  its  existence  it  was  looked  upon  and  dealt  with  by 
a  large  majority  of  business  men,  and  by  rnen  in  public 
life  with  scarcely  an  exception,  as  a  political  rather  than  a 
business  undertaking.  Its  projector,  Hamilton,  in  1791 
urged  its  creation  "as  a  powerful  political  engine."  Polit-  I 
ical  opposition  continued  from  the  beginning  to  the  end  of 
its  career.  When  Jefferson  became  President  he  desired 
Albert  Gallatin,  then  Secretary  of  the  Treasury,  to  make 
ajudicious  distribution  of  his  favors  among  all  the  banks, 
since  the  stock  of  the  United  States  Bank  was  held 
largely  by  foreigners,  and,  "were  the  Bank  of  the  United 
States  to  swallow  up  the  others,  and  monopolize  the 
whole  banking  business  of  the  United  States  — which  the 
demands  we  furnish  them  with  tend  shortly  to  favor  — 
we  might,  on  a  misunderstanding  with  a  foreign  power, 
be  immensely  embarrassed  by  any  disaffection  in  that 
bank."  When  the  territory  of  Louisiana  was  purchased 
in  1805,  Gallatin  was  desirous  of  establishing  a  branch 
bank  at  New  Orleans.  He  considered  the  step  of  the 
highest  importance.  But  the  President  vehemently 
opposed  every  extension  of  the  bank.  He  wrote  to  Gal- 
latin: "This  institution  is  one  of  the  most  deadly  hostility 
existing  against  the  principles  and  form  of  our  Constitu- 
tion. What  an  obstruction  could  not  this  Bank  of  the 
United  States,  with  all  its  branch  banks,  be   in  time  of 


(^'''-      W^;iJ'-r^ 


H/ 


/ 


"5 

war!"  But  Gallatin,  being  brought  into  more  intimate 
relations  with  the  bank,  did  not  share  the  fears  which 
Mr.  Jefferson  expressed,  and  the  branch  was  established 
at  New  Orleans.  While  the  bank  existed  the  funds  of 
the  Government  were  deposited  with  it  to  the  credit  of 
the  United  States  Treasurer.  They  were  considered  in 
the  Treasury  from  the  time  of  depositing  them,  and  were 
subject  to  the  Treasurer's  control.  The  Government 
ceased  to  be  a  stockholder  in  1802,  and  only  once  applied 
for  a  loan  after  1805.  The  revenues  of  the  Government 
had  grown  more  ample,  its  wants  were  not  so  pressing, 
and  loans  were  unnecessary.  With  the  great  majority  in 
Congress  the  bank  was  endured  only  as  a  convenience 
for  obtaining  such  loans.  Yet  the  other  advantages 
derived  by  the  Government  from  the  bank  were  neither 
few  nor  unimportant.  As  stated  by  Gallatin  in  a  com- 
munication to  Congress  recommending  a  renewal  of  the 
charter,  these  advantages  were,  first,  with  respect 
to  keeping  the  public  money ;  another  concerned  its 
transmission  from  point  to  point,  both  at  home  and 
abroad;  a  third,  and  the  greatest,  related  to  the  collection 
of  the  revenue.  The  punctuality  of  payments  introduced 
by  the  banking  system,  and  the  facilities  which  it  afforded 
importers  indebted  for  revenue  bonds,  had  enabled  the 
Government  to  collect  with  greater  facility  and  fewer 
losses  the  revenues  derived  from  the  imports  than  it  could, 
have  done  had  no  such  bank  existed.  One  chief  com- 
plaint was  that  the  bank  and  its  branches,  and  particularly 
the  branch  in  New  York,  were  more  inclined  to  grant 
loans  to  the  members  of  one  political  party  than  to  others. 
Whether  this  charge  contained  any  truth  or  not,  the  com- 
plaint ceased  to  be  heard  after  the  creation  of  the  Man- 
hattan Company  in  1799. 


1 


1x6 


/ 


The  bank  was  required  to  make  weekly  reports  to 
the  Secretary  of  the  Treasury,  but  the  following,  for  Jan- 
uary 24,  181 1,  is  one  of  the  only  two  balanced  statements 
found  of  record: 


RESOURCES. 
Loans  and  discounts,        -  _  _ 

United  States  six  per  cent  stock, 
Other  United  States  indebtedness,  - 
Due  from  other  banks, 
Real  estate,  .  -  -  . 

Notes  of  other  banks  on  hand,  - 
Specie,       -  .  .  .  . 

Total,  -  .  .  , 

LIABILITIES. 
Capital  stock,  ... 

Undivided  surplus,  ... 

Circulating  notes  outstanding. 
Individual  deposits,  -  -  . 

United  States  deposits. 
Due  to  other  banks,        -  -  - 

Unpaid  drafts  outstanding,    - 

Total,  -  -  -  - 


-  i?i4,578,294 
2,750,000 

57,046 

894,145 
500,653 

393,341 
5,009,567 

-  ^24,183,046 

^10,000,000 

509,678 

5,037,125 

5,904,423 

1,929,999 

634,348 

171,743 

^24,183, 046 

In  1808  the  bank  petitioned  for  a  renewal  of  its  charter 
which  would  expire  three  years  later.  This  application 
was  favored  by  Gallatin,  Secretary  of  the  Treasury,  and 
by  Crawford  and  Pickering  in  the  Senate,  and  opposed 
by  Mr.  Clay.  The  trouble  with  France  and  England  then 
impending  made  war  probable  in  the  early  future  with  one 
or  both  of  these  powers.  The  State  banks  expected  to 
profit  from  the  disturbances  which  would  accompany  open 
war  and  contributed  largely  to  prevent  any  consideration  of 
the  bank's  application  until  1810,  when  a  decision  could 
no  longer  be  delayed.  The  necessity  of  the  bank  was 
warmly  urged  by  the  Treasury  department.     The  debate 


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CEDAR     RAPIDS 

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Officers. 

H.  E.  Ball,  Proident. 

Oeo.  C.  Moxrbll,  Vice  President. 

B.  R.  WunLTR,  SecreUry. 

P.  T.  Bastlbtt,  Am"!  SecreUry. 

S.  L.  LEAvrrr,  Manager  City  Dep't. 

G.  J.  WiLMOT,  Gen'l  Examiner. 

Jones  &  Maion,  Counsel. 

Byron  Robsrts,  i 

RANKra  Mason,    f  Auditors. 

O.  S.  Bowman,  Cashier. 

J.  P.  Goccw,.  Ass't  Casliier. 

Boston  Safr  Deposit  and  Trust  Co.,  Trustee. 


B'jston  Office  removed  to  loi  Devonshire 
Street,  corner  Water  St. 


1 500.000.00 

Geo.L.Joy.         EJ^.Smilh- 

Secretary. 


Fresicier\t  . 

Directors. 


Benjavin  M.  Davies, 

Topeka,  Kansas,  Vice  President,  Bank  of  Topeka. 

Hon.  Albert  H.  Horton, 

Topeka,  Kansas,  Chief  Justice  Supreme  Court. 

Oliver  H.  Hav, 

Topeka,  Kansas,  Hay,  Wiggin  &  Co.,  Dry  Goods. 

SvLVANUS  L.  Leavitt, 

Topeka,  Kansas,  Capitalist;  Director  Kansas   Kat'l   Bank. 

Byron  Roberts, 

Topeka,  Kansas,  Treasurer  Shawnee  County  Kansas;  late 

Cashier  Bank  of  Topeka. 

Rankin  Mason, 

Topeka.  Kansas,  Jones  &  Mason,  Attorneys  at  Law, 

Geo.  C.  Mokrell,  Vice  President, 

Boston,  Mass. 
Bennett  R.  Wheeler,  Secretary, 
Topeka,  Kansas. 


Herbert  E.  Ball,  President, 
Topeka,  Kansas. 

Hon.  Joshua  G.  Hall, 

Dover,  N.  H.,  Ex-Member  Congress;  Director  Dover 

National  Bank. 

Hon.  Samoel  T.  Howe, 
Topeka,  Kansas:  President  Kansas  National  Bank;  Ex- 
Treasurer  State  of  Kansas. 

Lewis  W.  Anthony, 

Providence,   R.  I.,  Green,  Anthony  &  Co.,    Wholesale 

Dealers  Boots  and  Shoes;  Director  Traders 

National  Bank. 

Isaac  J.  Carr, 
Gardiner,  Me.,  President  Gardiner  National  Bank. 

Edwin  A.  Smith. 
Providence,  R.  I.,  Cashier  City  National  Bank. 


117 


in  both  branches  of  Congress  was  long,  able  and  bitter. 
The  old  question  of  its  constitutionality  was  discussed  at 
great  length,  and  its  opponents  denied  that  the  institution 
was  at  all  necessary  to  aid  the  Government  in  discharging 
its  functions,  insisting  that  it  was  evident,  from  the  rapid 
multiplying  of  State  banks,  that  there  was  a  redundancy 
of  capital.  It  was  asserted  that  in  case  the  bank  should 
not  be  rechartered  that  the  quantity  of  specie  in  the 
country  would  be  reduced  by  the  exportation  of  the  large 
amount  of  its  capital  which  belonged  to  foreigners.  The 
bill  was  defeated  in  the  Senate  by  the  -casting  vote  of  the 
Vice-President,  George  Clinton,  on  February  20,  181 1, 
and  subsequently  failed  in  the  House  by  a  minority  of  one^ 
vote.  The  bank  was  now  obliged  to  wind  up  its  affairs, 
which  was  done  with  very  little  disturbance  to  the  busi- 
ness interests  of  the  country.  Within  eighteen  months 
from  March  4,  181  i,  the  stockholders  had  received  88  per 
cent  upon  their  stock.  On  finally  closing  its  business,  the 
assets  yielded  to  the  stockholders  an  excess  of  8^  per 
cent  above  the  par  value  of  the  stock.  Before  going  into 
liquidation,  the  bank  made  an  unsuccessful  application  to 
the  Legislature  of  Pennsylvania  for  a  charter  for  a  State 
bank  with  a  capital  of  $5,000,000. 

During  the  war  of  18 12- 15  the  National  Govern- 
ment, which  was  embarrassed  by  the  want  of  means,  had 
received  very  considerable  loans  and  other  timely  service 
from  the  State  banks.  Owing  largely  to  such  advances, 
the  State  banks,  with  the  exception  of  those  of  New  Eng- 
land, were,  in  August  and  September,  18 14,  driven  to  a 
suspension  of  specie  payments.  Toward  the  end  of  18 14 
the  finances  of  the  Government  were  again  in  seemingly 
inextricable  confusion.  Alexander  J.  Dallas  became  Sec- 
retary of  the  Treasury  on  October  6,  18 14,  and,  within  a 


ii8 

fortnight  thereafter,  made  to  Congress  a  report  of  extraor- 
dinary ability  and  lucidity  upon  the  condition  of  affairs./ 
In  this  communication  he  strongly  recommended  the 
re-establishment  of  a  national  bank,  as  the  remedy 
required  to  bring  the  finances  once  more  into  order. 
The  State  banks  again  were  opposed  to  its  creation. 
With  them  were  the  speculators  in  exchange,  whose  influ- 
ence was  very  considerable,  and  all  whose  interest  were 
served  by  a  continuation  of  the  suspension  of  specie  pay- 
ments. Various  plans  were  brought  forward  in  Congress 
which  resulted  in  nothing,  until,  on  January  20,  181 5,  a 
bill  was  passed.  This  was  vetoed  by  President  Madison, 
not  for  lack  of  constitutionality,  as  he  considered  that 
point  already  settled  by  the  courts,  but  on  the  ground 
that  it  would  not  accomplish  the  objects  rendered  neces- 
sary by  the  state  of  the  revenue  and  the  condition  of  the 
country.  On  April  3,  1816,  however,  a  bill  for  a  Bank  of 
the  United  States,  which  had  previously  passed  the  House 
of  Representatives,  was  adopted  by  the  Senate,  and, 
receiving  the  signature  of  the  President,  became  a  law  on 
April  10,  18 16. 

The  charter  was  limited  to  twenty  years  and  the 
capital  to  $35,ooo,o<x),  composed  of  350,000  shares  of 
$100  each;  $7,000,000  was  to  be  subscribed  by  the  Gov- 
ernment, payable  in  coin  or  in  United  States  five  per 
cent  stocks  at  the  option  of  the  Government.  Other 
subscriptions  were  payable  one-fourth  in  coin  and  the 
remainder  in  coin-  or  United  States  stocks.  Five  of  its 
twenty-five  directors  were  to  be  appointed  by  the  Presi- 
dent of  the  United  States.  The  bank  was  to  be  made  a 
public  depository  and  was  to  aid  the  Government,  free  of 
charge  therefor,  in  negotiating  its  loans.  It  was  empow- 
ered to  establish  branches  and  to  issue  circulating  notes 


119 


which  were  to  be  receivable  in  all  payments  to  the   United 
States.    No  other  bank,  outside  of  the  District  of  Columbia, 
was  to  be  established  by  Congress  during  the  continuance 
of  this  charter,  and,  in  consideration  of  the  grants  therein, 
the  bank  was  to  pay  to  the  United  States  $1,500,000  in 
three  installments.     It   was  authorized  to  organize    and 
commence  business  so  soon  as  $8,400,000,  exclusive  of  the 
subscription  of  the  United  States,  was  paid  in.     It  was 
prohibited  from  lending  on   the  account   of  the   United 
States  more  than  $500,000,  or  to  any  State  more  than 
$50,000,  or  to  any  foreign  prince  or  power  any  sum  what- 
ever,   without    the    sanction    of    law    being    previously 
obtained.     It  went  into  operation  January  7,  18 17,  and  it 
was  through  its  agency  that  the  other  banks  throughout 
the  country  were  enabled  and  induced  to  resume  specie 
payments.     At  that  time  bank-notes  at  Washington  and 
Baltimore  were  twenty-two  per  cent  below  par;  at  Phila- 
delphia from  seventeen  to  eighteen  per  cent;  and  at  New 
York  and  Charleston  they  were  from  seven  to  ten  per 
cent.     In  the  interior  the  depreciation  was  much  greater. 
This  was  nearly  the  worst  stage  of  the  monetary  trouble 
resulting  from  the  then  late  war,  and  at  the  verge  of  that 
financial  crisis  which  culminated  in  1819-20.     As  soon  as 
the  bank  opened  the  Secretary  of  the  Treasury  directed  | 
importers  to  lodge  their  bonds  with  it,  the  bank  agreeing,/ 
greatly  to  the  relief  of  the    Treasury,    to    discount    the' 
notes  given  for  duties,  to  secure  which  these  bonds  were, 
deposited.      Congress  resolved   on  April   30,   18 16,  that\      y^ 
all  duties,  taxes  and  debts  payable  to  the  United   States  1 
after  February  20,  181 7,  should  be  paid  in  the  "legal  cur-  1 
rency"  of  the  Government,  or  Treasury  notes,  or  in  notes    ' 
of  the  Bank  of  the  United  States,  or  of  oth'-r  banks  which 
paid  their  notes  on  demand  "in  the  legal  currency  of  the 


120 


United  States."    The  State  banks  agreed  to  resume  specie! 
payments  in  July,  1817,  but  neither  Mr.  Crawford,  Secre- \ 
taryofthe  Treasury,  nor  the   United   States  Bank,   had 
much  faith  that  they  would  fulfill  their  agreement.     Both 
the  Government  and  the  bank  were  desirous  of  hastening 
the   return   of    specie    payments,    and   the   latter   began 
negotiation  to  that  end.     One  consideration  moving  the 
bank  to  do  so  was  that,  if  it  succeeded,  the  obligation 
which    it   had   incurred    of  discounting  all   the  notes   of 
importers  would  be  very  much  diminished,  for  if  the  State 
banks  paid  in  specie  their  notes  would  be   readily  taken 
by   the   Government.     On  the  other  hand,   if  the  State 
banks  refused  to  make  any  arrangement   for   resuming 
specie  payment,   a  large  amount   of  valuable  paper  for 
discount  purposes  would  go  immediately  to  the  National 
bank,  and  the  State  banks  would  thus  lose  many  of  their 
best  customers.     As  the  result  of  this  community  of  inter- 
ests a  plan  was  devised  for  resuming  on   February   20, 
181 7,     On  that   day  the  balances   due  to    the    Govern- 
ment  in    the   several   banks,   which   ever  since  the  clos- 
ing of  the  first  Bank  of  the  United  States   had  kept  its 
deposits    with    the    State  banks,  were  to  be  transferred 
to  the    Bank   of  the  United  States,  retained  by   it  until 
July    I,    when    they    were  to  be   paid,  with  the   interest 
thereon.     In  liquidating  the  balances  which  might  be  due, 
the    United    States   Bank    agreed  to  credit  the    banks 
respectively  with  the  amount  of  their  checks  on  all  banks 
which  were  party  t*><'the  agreement.     The  payment  of  the 
balances  which  might  accumulate  against  the  banks,  sub- 
sequently to  the  transfer  of  the  balances  previously  men- 
tioned, from  the  payment  to  them  of  Government  dues  in 
return  for   money   previously  borrowed,   was    not    to    be 
demanded  by  the  Bank  of  the  United  States  until  it  and 


121 


its  branches  had  discounted  for  individuals,  other  than 
those  having  duties  to  pay,  certain  specified  sums  in  the 
several  principal  cities  of  the  country,  provided  the  money 
should  be  called  for  within  sixty  days,  by  borrowers  offering 
good  security.  If  the  whole  amount  so  to  be  loaned  should 
not  be  taken  by  individual  customers  then  the  residue  was 
to  be  lent  to  the  banks  signing  the  agreement.  This 
plan  for  restoring  specie  payments  was  wholly  successful. 
They  were  resumed  and  maintained  while  the  charter  of 
the  bank  continued  in  force. 

When  the  bank  began  business  eighteen  branches 
were  established  in  different  States.  The  notes  of  the 
bank,  whether  issued  by  the  parent  bank  or  by  any  of 
the  branches,  were  everywhere  received  in  payment  of 
duties  and  taxes,  and  were  redeemable  in  specie  at  any 
office  of  the  bank.  Another  very  important  function 
which  it  performed  was  in  equalizing  the  rates  of  domestic 
exchange.  Through  its  agency  funds  could  be  trans- 
mitted from  one  part  of  the  Union  to  another  at  an 
expense  not  exceeding  one-half,  and  frequendy  less  than 
one-fourth,  that  commonly  charged  by  private  dealers, 
not  exposed  to  the  competition  of  the  bank. 

From  1820  to  1835  the  country  was  prosperous,  the 
bank  recovered  from  its  embarrassments,  and  its  stock  rose 
steadily  in  value.  Long  before  1828  the  bank  had  lived 
down  all  respectable  opposition;  and  it  was  therefore  a 
surprise  to  all  parties  when  President  Jackson,  in  his  first  \ 
message,  in  December,  1829,  took  ground  against  a 
renewal  of  its  charter  when  it  should  expire  in  1836.  The 
agitation  thus  awakened  grew  in  intensity,  until  it  culmi- 
nated on  July  16,  1832,  in  the  veto  by  President  Jackson  J 
of  a  bill  re-chartering  the  bank. 

The  interval  of  about  six  years  between  the  com- 


122 

mencement  of  Jackson's  warfare  upon  the  bank  and  the 
expiration  of  its  charter  is  memorable  for  the  violence  and 
acrimony  of  the  dispute  between  the  administration  and 
its  supporters  on  one  hand,  and  the  bank  and  its  friends 
on  the  other,  both  in  and  out  of  Congress.  The  famous 
order  for  the  removal  of  the  Government  deposits  was 
issued  in  1833  by  Mr.  Taney,  who  was  made  Secre- 
tary of  the  Treasury  for  this  purpose,  his  predecessor, 
Mr.    Duane,    having   declined   to    issue   such   an    order. 

-When  Congress  re-assembled  in   December,  1833,  reso- 
lutions   were    adopted    in    both    Houses ;    those   of  the 

•  Senate  censuring  the  President  and  Secretary  of  the 
Treasury  for  usurpation  of  powers,  while  in  the  House  it 
was  declared  that  the  bank  ought  not  to  be  re-chartered, 
that  the  public  deposits  ought  not  to  be  restored  to  it, 
that  the  State  banks  should  be  continued  as  depositories, 
and  that  Congress  should  further  regulate  the  subject  by 
law.  Among  the  early  results  which  followed  the  removal 
of  the  deposits  was  the  expansion  of  their  issues  by  the 
State  depositories,  and  the  wild  and  general  inflation  of  the  / 
currency  by  a  multitude  of  other  banks,  old  and  new.  The 
aggregate  of  circulating  notes,  exclusive  of  those  of  the 
Bank  of  the  United  States,  increased  from  $61,000,000,  in 
1830,  to  $149,000,000,  in  1837.  In  1830  the  currency  of  the 
country  had  been  characterized  by  the  finance  committee 
of  the  Senate  as  being  more  sound  and  uniform  than  that 
possessed  by  any  other  country;  and  yet  within  seven 
years  after  this  all  the  banks  then  in  operation,  including 
the  great  Bank  of  the  United  States,  which  had  been  ■ 
re-chartered  by  the  State  of  Pennsylvania,  went  into  sus-  / 
pension.  The  bank,  when  denied  a  renewal  of  its  charter 
by  Congress,  did  not  close  up  its  affairs,  but  applied  for, 
and  obtained,  a  charter  from  the  State  of  Pennsylvania, 


123 

February  i8,  1836,  thirteen  days  before  the  expiration  of 
its  charter  from  the  National  Government.  This  was 
substantially  a  renewal  for  thirty  years  of  the  old  charter 
and  under  the  old  corporate  name,  but  with  a  change  as 
to  the  amount  and  terms  of  the  bonus  to  be  paid  the  State 
for  such  charter.  Colonel  Benton,  a  sincere  if  not  unpre- 
judiced opponent  of  the  Bank  of  the  United  States,  char- 
acterized the  Pennsylvania  charter  as  indicating,  by  every 
circumstance  of  its  enactment,  corruption  and  bribery  in 
the  members  who  passed  it,  and  an  attempt  to  bribe  the 
whole  people  of  that  State  through  the  bonus  to  be 
distributed  among  them.  This  bonus,  had  the  bank 
remained  solvent  and  in  existence  long  enough,  would  not 
have  fallen  short  of  $5,000,000. 

The  history  of  the  bank  subsequent  to  the  crisis  of 
1837  was  a  disastrous  one.  It  suspended  payments  as 
frequently  as  other  State  banks,  and  finally  succumbed  to 
difficulties  which  prudent  management  would  have  enabled 
it  to  overcome.  It  made  three  several  assignments  in 
1841,  to  secure  various  liabilities,  the  last  and  final  assign- 
ment being  on  September  4,  1841.  The  $7,000,000  of 
stock  held  by  the  United  States  previous  to  the  time  at 
which  the  institution  became  a  State  bank  was  paid  back 
in  full,  and  the  Government  realized  a  very  handsome 
profit  upon  its  investment,  as  will  appear  by  the  following 
statement,  taken  from  the  report  of  the  Comptroller  of 
the  Currency  for  1876  : 


124 

Bonus  paid  by  the   Bank    of  the  United 

States,           -         -         .         .         .  ;?  1, 5  00,000.00 

Dividends  received  from  the  bank,    -  V^i  18,416.29 
Proceeds    of   stock  sold  and  moneys    - 

received  from  the  bank,       :         -  9,424,750.78 

^°^^^'  $18,043,167.07 

Subscription    of   capital    stock,   paid   in 

United  States  five  per  cent  bonds,  $7,000,000.00 
Interest  paid  by  the  United  States  on  same,     4,950,000.00 

11,950,000.00 

Profit  on  investment,      -         -         -  §6,093,167.07 

Nicholas  Biddle  was  president  of  the  liank  from  Jan- 
uary, 1823,  to  March,  1839.  At  the  time  of  his  resigna- 
tion the  shares  were  selling  at  1 1 1,  having  in  1837  sold  at 
137;  but  in  1843,  after  the  failure  of  the  bank,  the  shares 
were  quoted  at  one  and  seven-eighths  per  cent.  The  cir- 
culating notes  of  the  bank,  together  with  the  deposits, 
were  paid  in  full,  principal  and  interest;  but  the  whole 
capital  of  $28,000,000  was  lost  td  the  share-holders. 


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Chapter  VIII. 

STATE  BANKS  UNTIL  1816. 

We  have  seen  that  at  the  time  of  the  establishment 
of  the  first  United  States  Bank  three  State  banlcs  existed: 
the  Bank  of  North  America,  the  Bank  of  Massachusetts, 
and  the  Bank  of  New  York.  The  course  of  business  to 
the  beginning  of  the  jjresent  century  is  sufficiently  indi- 
cated in  the  accounts  given  of  these  institutions.  They 
served  quite  as  much  to  steady  the  business  of  the  country 
as  to  extend  it.  They  inculcated  a  promptness  of  pay- 
ment and  regularity  in  conducting  all  business  affairs,  to 
which  merchants  had  generally  theretofore  been  strangers. 
As  business  expanded  merchants  gradually  adopted  the 
habit  of  selling  their  goods  on  credit,  and,  requiring  Span- 
ish milled  dollars  for  shipment  to  India  and  China  and 
doubloons  for  the  purchase  of  West  Indian  produce  for 
Europe,  they  became  more  dependent  on  the  banks  for 
accommodations  and  facilities,  and  the  number  of  these 
institutions  multiplied  with  the  growth  of  trade.  The 
banks  obtained  specie  from  various  sources,  but  while  war 
lasted  between  Spain  and  Great  Britain  our  countrymen 
were  the  carriers  and  commercial  agents  of  Spain,  and  as 
nearly  all  the  silver  product  of  Mexico  and  South  America 
passed  through  this  channel,  the  banks  of  this  country 
early  accumulated  a  substantial  and  abundant  fund  of 
specie.  From  the  peace  of  Amiens  in  1801  the  influx 
of  silver  abated,  although  still  considerable.  Gouge  says: 
"The  specie  constantly  in  transitu  from  South  America 

las 


126 

through  the  United  States  to  other  parts  of  the  world 
was  so  great  in  amount  that  a  retention  of  the  quarterly  or 
semi-quarterly  supply  for  only  a  month  or  two  was  suffi- 
cient to  relieve  the  banks  from  the  difficulties  into  which 
they  were  occasionally  brought  by  extending  their  opera- 
tions too  far. " 

Banking  on  the  whole  was  a  very  profitable  business 
in  those  days.     From  1792  to  1808  the  Bank  of  Pennsyl- 
vania never  divided  less  than   eight  per  cent,  and  some- 
times ten.     In  1792  the  Bank  of  North  America  divided 
fifteen  per  cent,  the  next  year  thirteen  and  one-half,  and 
for  the  five  succeeding  years  twelve  per  cent  annually. 
Our  commerce  being  exposed  to  frequent  interruptions  by 
belligerents,   the   necessity  for  borrowing  was  often  so 
urgent  as  to  make  the  banks  masters  of  the  situation,  and 
money  was  not  infrequently  lent  by  them  for  two  and  three 
per  cent  a   month.     The   business   of  banking   was  less 
openly  conducted  than  at  the  present  day.     It  was  part  of 
the  policy  of  every  bank  to  keep  its  transactions  as  care- 
fully   hidden   as    possible.     It   was   long   before   people 
generally  became   sufficiently  accustomed  to  these  insti- 
tutions either  to  appreciate  or  admit  their  utility.     Except 
a  branch  of  the  United  States  Bank,  which  was  set  up  in 
Norfolk  in  1799,  no  bank  existed  in  Virginia  until   1804. 
Yet   a   subsequent    writer  in   the    Richmond    Enquirer 
declared  that  until  this  branch  appeared  there  no  people 
enjoyed  greater  happiness.     "  The  desk  of  every  agricul- 
turist in  Virginia  had  some  gold  or  silver  to  spare  if  he 
were  a  prudent,  industrious  man,  or  he  had  something  like 
money  to  spare  in  the  hands  of  his  merchant,  who,  in  the 
days  of  which  I   am  speaking,  acted  as  a  banker  to  his 
prospering  customers.     Nor  was  any  interest  paid  upon 
such  moneys  as  might  be  deposited  in   the   hands  of  the 


127 


merchant,  because  both  planter  and  merchant  considered 
themselves  accommodated  by  the  arrangement-  -the 
planter  in  having  his  money  safely  kept  for  him  until  he 
wanted  to  use  it,  and  the  merchant  in  having  the  use  of  the 
money  until  it  was  called  for. " 

As  for  the  need  of  banks  to  transmit  funds  from  one 
place  to  another,  he  adds:  "Nor  was  there  the  least 
inconvenience  in  transmitting  money  from  one  point  to 
another  through  the  merchants  whose  credit  was  then  as 
good  as  the  credit  of  the  banks  now,  if  not  better.  Banks 
have  destroyed  the  credit  and  confidence  which  men  had 
in  one  another." 

The  banks  in  the  greater  cities  having  comparatively 
large  capitals,  were  conducted  on  principles  which  afforded 
greater  safety  to  the  public  than  the  smaller  institutions 
situated  elsewhere,  whose  capital  often  to  a  considerable 
extent  was  fictitious,  consisting  partly  in  notes  secured  by 
stock  and  managed  by  persons  "with  whose  skill,  caution 
or  integrity  the  public  was  very  little  acquainted."  Yet 
these  latter  were  the  banks  which  had  the  most  extensive 
circulation.  In  1809  the  three  banks  in  Boston  made 
the  following  return: 


Massachusetts, 
Union, 
Boston,  - 


Capital.  Circulation.      Specie. 

$  800,000  $139,850     $105,670 

1,200,000  279,431       132,242 

1,800,000  226,940       161,270 


$3,800,000           $646,221  $399,182 

At  the  same  time,  five  other  banks  in   the  State  of 
Massachusetts  made  the  following  return: 

Capital.       Circulation.  Spepie. 

Lincoln  and  Kennebec,        -         -      $200,000          $242,847  $20,920 

Northampton,          .         .         -        '.      75,000             122,363  19,377 

Hallowell  and  Augusta,        -         -        200,000             166,123  23,664 

Penobscot,      -         .         .         :         .     150,000              183,470  19,586 

Berkshire,            ....           75,000               83,060  7,682 


$700,000 


^797.863        $91,229 


128 


These  figures  forcibly  illustrate  the  difference  between 
the  safe  and  cautious  method  of  conducting  a  banking 
business  observed  in  the  cities  and  the  erratic  and  irre- 
sponsible method  of  operating  outside  them. 

After   the    Bank    of    Massachusetts   the   next    bank 
chartered  in  that  State  was  the  Union  Bank,  organized  in 
1792.    with  a  capital  of  $1,200,000,   of  which   $400,000 
was  subscribed  by  the  State.     In  ,  795  the  Nantucket  and 
Mernmac  Banks  were  established.     Up  to   1799  but  one 
more   bank    was   chartered    in    Massachusetts.      In    that 
year   a  law   was    enacted   prohibiting   the   establishment 
of  unincorporated  associations.     In  1803  an  act  requiring 
semi-annual   returns    to   be  made  by  the   banks   to    the 
Governor    and    Council    was  passed,   and    in     1805    an 
amendment  required  these   returns   to  be   sworn   to.      In 
1805    sixteen    banks    were  in  operation.     From    1805  to 
181 1  but  one  new  bank  was  chartered.     Two  more  were 
chartered  in  18  r  i.     In  all  the  charters  granted  by  Massa- 
chusetts after  1793,  provision  was  made  for  a  State  sub- 
scription, and  in   181 2   the  State  held  about  $1,000,000 
out  of  the  $8,000,000  of  stock  of  the  banks  of  the  State. 
Nearly  all  the  banks  were  re-chartered  in  1 8 1 1 .     In   1 8 1 2 
the  State  first  imposed  a  tax  on  bank  capital.     In  18 13 
the  system  of  compelling  the  redemption  at  par  in  Boston 
of  the  notes  of  the  eastern  banks,  by  assorting  and  return- 
ing the  notes  to  the  place  of  issue,  was   inaugurated   by 
the  New  England  Bank  organized  that  year.     This  was 
^   the  beginning  of  what  was  afterward  known  as  the  Suffolk 
Bank  system. 

Up  to  June  II,  1 81 2,  the  date  of  the  declaration  of 
war  with  Great  Britain,  nineteen  banks  were  chartered  by 
the  Legislature  of  New  York.  Seven  of  these:  the  Bank 
of  New  York,  Merchants',  Mechanics',    Union,  and   City 


6RAMD  I 

0FFIGEK3 


Inv/estrqeqt  Departpient  \\i         ^    ,. 
eorjjieeliori  witl^  this  bar^H^Ufzder    <<^ 
\\\e,  nxai^agerr^erit  of  CL».DoDDCfl  |^ 

AND      DEBENTURE    BONQ5 


129 

Bank  of  New  York  City,  the  New  York  State  Bank  of 
Albany,  and  the  Bank  of  Utica,  are  now  National  banks, 
and  the  Manhattan  Company  and  Bank  of  America  are 
the  leading  State  banks. 

During  the  period  from  1791  to  181 2  political  feeling^ 
was  bitter,  and  obtaining  the  charters  of  the  banks  organ- 
ized during  this  time  was,  in  many  cases,  the  occasion  of 
much  strife  and  intrigue.  Governor  Tompkins,  afterward 
Vice-President  of  the  United  States,  in  the  year  18 13  pro- 
rogued the  Legislature,  assigning  as  one  reason  for  his 
action  the  attempt  to  secure  a  bank  charter  through  the 
use  of  corrupt  means.  These  charters  were  in  the  nature 
of  special  privileges,  granted  to  particular  persons,  and  all 
others  were  specially  restrained  by  law  from  participating 
in  the  business  of  banking.  A  restraining  act  was  passe 
in  1804  to  compel  private  banking  institutions  to  wind  up 
their  business,  leaving  a  clear  field  to  chartered  corpora- 
tions. This  act  prohibited  any  person,  under  a  penalty 
of  $1,000,  from  subscribing  to,  or  becoming  a  member  of, 
any  association  for  the  purpose  of  receiving  deposits,  or 
from  doing  any  business  which  incorporated  banks,  by 
their  charters,  were  permitted  to  do. 

The  first  institution  in  the  State  of  Ohio  in  the 
nature  of  a  bank  was  chartered  under  the  name  of  the 
Miami  Exporting  Company,  in  1803,  immediately  upon 
the  admission  of  this  State  to  the  Union.  It  was  chart- 
ered for  forty  years,  with  a  nominal  capital  of  $500,000, 
in  shares  of  $100  each,  payable  five  dollars  in  cash  and 
the  remainder  in  produce  or  merchandise.  Although  in 
form  a  trading  company,  it  issued  bills  and  redeemed  them 
in  notes  of  other  banks.  The  first  regular  bank  was  chart- 
ered in  1808,  and  was  located  in  Marietta,  with  a  capital 
of  $500,000.     During  the  same  year  another  bank  was 


I30 


established  at  Chillicothe,  then  capital  of  the  State,  with 
a  capital  of  $100,000.  From  1809  to  18 16  four  banks 
only  were  chartered  in  Ohio. 

The  first  bank  in  the  State  of  Illinois  was  established 
under  its  Territorial  Government  in  1813,  at  Shawnee- 
town,  and  three  years  after  was  incorporated  for  a  term  of 
twenty  years  with  a  capital  of  $300,000.  In  1835  its  charter 
was  extended  to  1857  and  its  capital  increased  to  $1,400,- 
000  the  additional  capital  being  subscribed  by  the  State. 

The  first  serious  explosion  in  the  banking  business 
in  New  England  after  the  adoption  of  the  Federal  Con- 
stitution occurred  in  1809.  The  notes  of  many  banks 
outside  Boston  were  at  a  varying  discount,  running  as 
high  as  five  per  cent,  and  the  merchants  and  retail  dealers 
in  that  city  on  whom  the  burden  of  depreciation  fell  com- 
^bined  for  their  own  protection.  They  appointed  a  com- 
mittee and  raised  a  fund  for  the  purpose  of  sending  home 
the  bills  of  banks  outside  that  city  received  in  the  course 
of  their  business  and  procuring  their  redemption  and  of 
bringing  suits  against  banks  neglecting  or  refusing  pay- 
ment. This  step  brought  on  a  crisis.  First,  the  Farmers' 
Exchange  Bank  —  a  large  institution  whose  operations 
were  among  the  most  notable  in  the  history  of  New  Eng- 
land banking  —  suddenly  failed,  and  "the  shock  upon  the 
public  was  tremendous."  The  Berkshire  Bank  followed 
next.  The  discovery  that  banks  could  fail  affected  the 
credit  of  all,  and  in  1809  most  of  the  country  banks  of 
New  England  having  bills  in  circulation  stopped  payment. 
"It  would  probably  be  a  moderate  estimate  to  put  the  loss 
in  New  England  by  the  bank  failures  of  that  period  at 
$  1 ,000,000. " 

When  the  charter  of  the  first  United   States  Bank 
expired  its  notes  were  withdrawn  and  the  notes  of  State 


131 

banks  were  issued  in  reckless  profusion  to  supply  their 
place.  During  the  year  i8i  i  and  the  two  succeeding  years 
one  hundred  and  twenty  new  banks  commenced  business 
in  the  United  States.  In  Pennsylvania  the  Legislature 
passed  an  act  authorizing  the  wholesale  creation  of  new 
banks  on  the  loosest  principles,  which,  fortunately,  was 
vetoed  by  the  Governor.  The  new  banks  of  these  three 
years  added  nominally  about  $30,000,000  to  the  banking 
capital  of  the  country.  But  the  real  capital  of  nearly 
all  of  these  new  concerns  was  almost  purely  nominal, 
as,  when  a  new  bank  was  organized,  its  stock  sub- 
scribed, and  the  first  installment  paid,  stock  notes  were 
taken  for  the  residue,  which  notes  were  discounted  to 
meet  all  subsequent  calls.  As  soon  as  it  became  known 
that  this  practice  was  generally  followed  the  credit  of 
all  banks  of  circulation,  save  those  whose  reputation 
had  been  firmly  established,  was  quite  swept  away  and 
the  issues  of  all  except  a  comparatively  small  number 
of  well-known  batiks  began  to  depreciate.  This  in- 
crease of  banking  circulation  came  on  the  eve  of  the  war 
with  Great  Britain  during  which  period  exports  almost 
ceased,  and  the  coasting  and  foreign  trade  of  the  whole 
country  was  practically  annihilated.  As  but  a  small  por- 
tion of  this  manufactured  capital  could  be  used  in  legiti- 
mate mercantile  enterprise,  considerable  sums  were 
invested  in  Government  loans.  The  demand  for  money 
in  this  direction  as  the  war  progressed  became  so  great 
that  bank-notes  rapidly  multiplied.  In  New  England, 
however,  the  banks  did  not  subscribe  so  freely,  because 
of  the  unpopularity  of  the  war  in  that  section.  The  banks 
of  the  interior,  as  well  as  those  of  New  York,  Philadel- 
phia and  Baltimore,  expanded  their  issues  with  inexcusa- 
ble  indiscretion,  to  call  it  by  no    harsher   name.     The 


132 

drain  upon  the  country  for  specie  for  shipment  to  Europe 
was  great,  increasing,  and  perfectly  well  known.  As  is 
always  the  case  this  drain  was  felt  first  and  with  greatest 
stringency  in  those  cities  where  the  paper  in  circulation 
was  most  abundant  and  most  discredited.  At  this  time 
the  laws  of  the  New  England  States  imposed  a  penalty  of 
V  twenty-four  per  cent  per  annum  on  all  banks  suspending 
payment  of  their  circulating  notes.  This  regulation 
forced  the  weaker  banks  of  that  section  to  the  wall,  and 
assisted  the  stronger  institutions  in  maintaining  their  notes 
in  full  credit  after  those  of  the  banks  of  other  sections  had 
become  greatly  depreciated. 

The  capture  of  Washington  in  1814  was  followed  by 
»  the  failure  of  nearly  all  the  banks  of  the  middle  and  south- 
ern States.  All  had  been  drained  of  their  specie.  Those 
at  Washington  went  first,  ascribing  their  failure  to  the 
fact  that  they  were  plundered  by  the  English  invaders, 
though  they  had  little  for  the  enemy  to  take.  Those  at 
Baltimore  gave  way  next.  Then  the  six  banks  at  Phila- 
delphia suspended  specie  payments,  and  the  next  day 
those  of  New  York  followed  the  example.  The  New 
England  banks,  however,  easily  stood  the  pressure. 
Their  issues  of  circulating  paper  were  less,  their  indi- 
vidual strength  was  greater,  they  were  better  used  to 
united  action,  and  the  local  supply  of  specie  was  more 
abundant  than  in  any  other  section  of  the  Union.  In  the 
South  and  West  the  Bank  of  Nashville  alone  maintained 
specie  payment  of  its  paper  until  August  18 15,  "the  sturdy 
honesty  of  whose  directors,"  says  Gouge,  "amidst  such 
general  knavery,  is  no  less  praiseworthy  than  it  is  remark- 
able. "  The  broken  banks,  though  refusing  to  redeem 
their  notes,  professed  their  desire  and  ability  to  do  so  at 
an  early  day.     At  first  business  was  not  seriously  inter- 


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rupted  by  their  suspension,  for  gold  and  silver  remained 
the  standard  of  value.     Bills  of  doubtful  credit  were  com- 
pared with  these  and  the  ratio  of  their  depreciation  fixed  . 
by  this  sound  standard.     Bank  bills  became  a  merchanta- 
ble commodity  and  were  commonly  bought  and  sold  for 
coin;  their  rate  of  discount  was  tabulated  and  regularly 
announced  in   the   newspapers;   they  were   even   sold   at 
auction,  the  purchaser  paying  therefor  in  specie.     Though 
the  people  and  the  Government  were  subjected  to  con- 
siderable loss  and  more  inconvenience  from  the  employ- 
ment of  this  depreciated  paper,   creditors   received  their 
just  dues  and  business  calculations  could  be   made  with 
reasonable  safety  so   long  as    the  specie   standard    was 
adhered  to.     But  the  unfortunate  action  of  the  then  Sec- 
retary of  the  Treasury  in  directing  that  the  depreciated 
paper  of  the  State  banks  should  be  received  without  dis- 
count in  payment  of  loans,  customs  duties,  and  other  taxes, 
changed  this  almost  in  a  moment.     The  suspended  banks 
increased  their  issues,  their  depreciated  currency  became 
the  standard,  coin  disappeared   or  was  bought  and  sold 
as  merchandise  at  a  premium  varying  in  different  cities 
with  the  ratio  of  debasement  of  local  bank-notes,  and  the 
difficulties  of  the  Government  and  the  business  community 
immensely  multiplied. 

From  1815  to  the  resumption  of  specie  payments  in 
1 81 7,  the  condition  of  affairs  was  such  as  to  place  a  direct 
premium  on  rascality  in  banking.  During  these  years, 
under  the  suspension  of  the  specie  payments,  while  they 
were  in  a  bankrupt  condition,  the  minor  State  banks 
made  larger  dividends  than  ever  before.  All  responsibil- 
ity for  their  issues  had  ceased ;  they  grew  rich  at  the 
expense  of  the  holders  of  their  notes.  It  is  no  wonder 
they  opposed  a  return  to  specie  payments. 


134 

We  have  seen,  in  connection  with  the  account  given 
of  the  formation  of  the  Second  Bank  of  the  United  States, 
the  part  played  by  that  bank  and  by  the  United  States 
Treasury  in  bringing  about,  in  1817,  a  return  to  specie 
payments. 


Chapter  IX. 

THE  STATE  BANKS  FROM  1816  TO  1863. 

When  the  Second  United  States  Bank  was  created 
the  various  State  banks  continued  to  do  business  as  before. 
The  Government  no  longer  kept  its  deposits  with  them, 
but  it  did  not  interfere  with  their  affairs.  Of  course,  the 
National  bank  with  its  vast  resources  overshadowed  them;' 
still  they  flourished  and  multiplied  in  number.  The  first 
noteworthy  advance  in  the  system  of  State  banking 
occurred  in  New  England  in  1824.  In  February  of  that 
year  an  attempt  was  made  to  induce  the  banks  of  Boston! 
to  give  the  bills  of  country  banks  the  same  credit  as  the 
banks  in  the  city  gave  to  the  notes  of  each  other.  If  they 
were  thus  taken  it  would  be  necessary  to  send  them  home 
to  be  redeemed  unless  the  country  banks  should  choose 
to  make  an  arrangement  for  their  redemption  in  Boston. 
It  was  finally  agreed  among  the  banks  (though  not  all  of 
them  came  into  the  scheme),  that  each  should  receive  at 
par  in  all  payments  from  its  customers  the  bills  of  all  the 
banks  in  good  credit  in  the  New  England  States,  thus 
making  country  money  equal  in  value  to  Boston  money,/ 
and  saving  to  the  customers  of  the  city  banks  the  tax 
previously  imposed  on  them  in  the  way  of  premium  for 
Boston  money.  The  bills  thus  received  were  not  to  be 
kept  for  any  considerable  length  of  time,  nor  to  be  paid  out 
to  supply  the  circulation  of  the  city.  Nor  was  it  neces- 
sary for  each  bank  to  employ  messengers  to  carry  the 
bills  home,  for  an  agreement  was  made  that  the  Suffolk 

13s 


^ 


136 

Bank  should  do  this  business  or  procure  their  redemption 
in  such  manner  as  it  saw  fit.     The  country  bills  received 
by  the  other  banks  in  Boston  which  were  parties  to  the 
arrangement  were  paid  over  daily  to  the   Suffolk  Bank, 
and  each  received  in  lieu  thereof  Boston  money  at  par. 
The  bills  thus  received  by  the   Suffolk   Bank  absorbed  a 
considerable  portion  of  its  capital.     To  indemnify  it  for 
exchanging  or  redeeming  the  bills  of  the  country  banks, 
the  allied  banks  each  lent  to  the  Suffolk   Bank,  without 
'*  interest,  a  sum  of  money  which  was  held  to  be  equivalent 
to  the  service  performed.     This  plan  of  redemption  was 
known  as  the  Suffolk  Bank  system,  and  was  of  obvious 
benefit  to  the  public  in  facilitating  the  transaction  of  business 
and  in  protecting  a  portion  of  the  community  from  a  con- 
stant tax  and  almost  every  one  from  occasional  heavy  losses. 
The  general  tendency  of  the  arrangement  was  to  give  to 
each  country  bank  the  benefit  of  the  principal  local  circu- 
lation of  its  own  neighborhood,  and  to  direct   its   bills 
homeward  when  they  had  wandered  away.     The  excel- 
lence of  the  system  is  shown  by  the  fact  that  it  continued 
for   so    many   years,    and   became    so    widely   accepted 
throughout    New    England.     It  operated  as  a  check  to 
excessive  issues  of  paper  by  any  of  the  banks  included  in 
the  association,  as  they  could  not  make  any  large  addi- 
tion to  the  quantity  of  their  notes  in  circulation  without  its 
being  at  once  discovered  by  the  Suffolk  Bank.     Discovery 
would  of  course  be  followed  by  a  demand  for  increased 
security  as  a  consideration  for  continuing  the  redemption 
of  the  bills  of  any  bank  'which   seemed  to  be  inclined  to 
resort  to   such  a  practice.     Although   there  was  at  first 
some  opposition  to  the  Suffolk  Bank  system  it  came  into 
nearly  universal  use  in  New  England  as  early  as  1825  and 
continued  in  successful  operation  down  to  the  adoption  of 
the  National  banking  system. 


137 

The  first  comprehensive  State  law  regulating-  bank- 
ing was  passed  in  Massachusetts  in  1829.  In  1837 
there  had  been  organized  in  that  State  one  hundred 
and  thirty-four  chartered  banks,  of  which  thirty-two 
failed  in  the  great  panic  of  that  year,  with  a  loss  of 
about  thirty  per  cent  of  their  entire  indebtedness.  From 
1793  to  1836  but  ten  banks  had  failed  in  Massachu- 
setts. As  a  result  of  the  revulsion  of  1837  that  State 
adopted  a  system  of  ofificial  examinations  which  was  care- 
fully and  judiciously  adhered  to,  and  which  was  equally 


¥' 


TWENTY  DOLLAR  PIECE. 


helpful  in  maintaining  the  soundness  and  solvency  of  the 
banks  and  public  faith  and  confidence  in  their  manage- 
ment. A  free-banking  law  was  adopted  in  1851,  much^ 
like  that  which  grew  up  in  the  State  of  New  York,  but 
only  seven  banks  were  organized  under  it,  as  the  specially 
chartered  banks  then  in  existence  were  possessed  of 
numerous  and  valuable  privileges  not  conceded  to  those 
formed  under  the  provisions  of  the  general  law.  In 
October,  T865,  all  but  one  of  the  State  banks  of  Massa- 
chusetts, save  four  which  wound  up  and  went  out  of  busi- 
ness, had  re-organized  as  National  banks. 

In  New  York  the  restraining  act  of  1804,  aimed  at 
the  extinction  of  unincorporated  banks,  was  followed  in 
1818  by  even  more  stringent  legislation.     This  enacted 


138 


V  that  no  person,  association  of  persons  or  body  corporate, 
except  such  bodies  corporate  as  were  expressly  authorized 
by  law,  should  keep  any  office  for  the  purpose  of  receiv- 
ing deposits,  or  discounting  notes  or  bills,  or  for  issuing 
any  evidence  of  debt  to  be  loaned  or  put  in  circulation  as 
money.  Although  many  of  the  restrictive  features  of  this 
law  were  salutary  and  are  to-day  part  of  the  law  of  every 
State,  its  effect,  as  a  whole,  was  in  the  direction  of  a 
monopoly  of  all  forms  of  brokerage  by  the  specially-chart- 
ered banks.  This  statute  remained  in  force  until  1837, 
only  one  year  before  the  adoption  of  the  free-banking  act. 


CALIFORNIAN  FIFTY-DOLLAR  PIECE  ISSUED  IN  1851  BY  THE  ASSAY  OFFICE  IN 

SAN  FRANCISCO. 

The  safety-fund  system  originated  in  New  York  and 
was  authorized,  on  the  recommendation  of  Governor  Van 
Buren,  by  the  Act  of  April  2,  1829.  The  distinctive 
feature  of  this  system  was  the  requirement  that  each  bank 
operated  under  it  should  make  an  annual  contribution  of 
one-half  of  one  per  cent  of  its  capital  to  a  common  fund  to 
be  held  by  the  Treasurer  of  the  State,  such  payments  to 
be  continued  until  each  bank  had  thus  deposited  three  per 
cent  of  its  capital.  This  fund  was  to  be  used  to  redeem 
the  circulating  notes  and  to  pay  the  other  debts  of  any 
bank,  joining  the  association,  which  might  become  insol- 


I 


139 

vent.     In    case    the    fund    should   at   any   time   become 
impaired  by  payments    made    from    it,    the    banks    were 
required  to  again  make   their  annual   contributions   until 
each  had  once  more  on  deposit  three  per  cent  of  its  capi- 
tal stock.     In  practice  the  amount  required  to  be  deposited  '' 
to  the  credit  of  the  fund   was  found  to  be  too   small   to 
afford  any  substantial  protection  or  relief.     When,  during 
the  panic  of  1837,  eleven  banks  belonging  to  the  system 
failed,  the  whole  fund  amounted  to  but  little  more   than 
five  per  cent  of  their  debts  for  the  payment  of  which   it 
was  pledged.     The  loss  in  this  one  instance  to  depositors 
and  bill-hoFders  of  these  banks  was  upward  of  $2,500,000, 
beside  the  total  loss  of  their  capital  stock  amounting  to 
some  $3,000,000  more.     This    deficiency    of  the    safety 
fund  wao  made  good  by  an  issue  by  the  State  of  its   six 
per  cent  bonds,  this  advance  to  be  reimbursed  by  future 
payments  by  the  banks    into  this   fund.      But  in   the  end 
the   State  was  a  considerable  loser  by  this  transaction   as 
the  whole  sum  contributed  by  safety-fund  banks  to  that 
fund  down  to    1848,  when   the  scheme  was  finally  aban- 
doned, was  but  about  $1,876,000,  little  more  than  seventy- 
five  per  cent  the  debts  of  the  eleven  insolvent  institutions. 
In  1842  the  safety-fund  law  was  amended  so  that  the  com- 
mon fund  became  responsible  only  for  the  payment  of  the  ' 
circulating   notes    of    banks    failing    thereafter;    it   being 
argued  that  banks  which  enjoyed   the  exclusive  privilege 
of  furnishing  a  paper  currency  should  be  required  to  con- 
tribute something  to  a  common  fund  to  make  that  currency 
safe  and  stable;  that  a  contribution  of  a  moderate  sum  for 
this  purpose   was  only  reasonable  and  proper,  but  that 
there  was  neither  propriety  nor  justice  in  requiring  all  the 
banks  to  contribute  to  a  general  fund  for  the  benefit  of 
'    the  depositors   or   other   general  creditors  of  individual 


I40 

banks;  and  as  there  was  no  exclusive  privilege  to  receive 
deposits  or  contract  general  debts  there  was  no  reason 
why  the  special  fund  should  be  applied  to  their  liquida- 
tion. The  orig-inal  safety-fund  system  also  operated  as  a 
bar  to  the  formation  of  new  banks,  which  led  to  many 
abuses  and  the  creation  of  much  cumbersome  machinery 
/  for  obtaining  new  charters.  This  was  one  strong  incen- 
tive to  the  adoption  by  the  State  of  New  York  of  the  free- 
banking  system,  which  was  created  by  the  Act  of  April  13, 
1838.  By  this  system  all  restrictions  of  banking  privileges 
to  a  favored  class  were  abolished.  Any  number  of  per- 
sons were  allowed  to  form  banking  associations,  subject 
only  to  the  common  restrictions  and  penalties  imposed  by 
the  general  law.  As  originally  enacted  the  law  provided 
for  the  issue  of  circulating  notes  to  these  banks  by  the 
State,  upon  the  deposit  of  stocks  of  the  State  of  New 
York  and  of  the  United  States  at  par,  or  of  other  States 
at  their  market  price  in  amount  sufficient  to  make  them 
equal  to  a  five  per  cent  stock  at  par,  or  of  bonds  secured 
by  mortgages  on  improved  and  productive  real  estate 
worth,  exclusive  of  the  buildings  thereon,  double  the 
amount  secured  by  the  mortgage,  and  bearing  interest  at 
not  less  than  six  per  cent.  The  issue  of  notes  to  each 
bank  was  to  be  equal  to  the  amount  of  the  deposit.  From 
1838  to  1843  twenty-nine  of  the  banks  organized  on  this 
plan  failed,  and  a  sale  of  the  securities  which  they  had 
deposited  realized  a  sum  sufficient  to  pay,  averaging  the 
whole,  seventy-four  per  cent  only  of  their  outstanding  cir- 
culating notes.  Some  paid  nearly  in  full,  others  much 
less  than  the  average.  Losses  in  every  instance  occurred 
only  in  the  case  of  those  banks  which  had  deposited  the 
stocks  of  States  other  than  New  York.  The  Act  was 
"^     therefore  amended  so  as  to  exclude  the  stocks  of  all  States 


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141 

except  New  York,  and  these  were  required  to  be  kept 
equal  in  amount,  at  market  value,  to  a  five  per  cent  stock  ' 
at  par.     In  1848  an  amendment  was  adopted  requiring  all 
stocks  deposited  to  bear  six  per  cent  interest  and  all  bonds 
seven  per  cent,  the  mortgages  securing  the  latter  to  be  for 
but  two-fifths  of  the  value  of  the  lands  covered.      In  1849 
still  another  amendatory  act  required  one-half  the  securi- 
ties in  all  cases  to  consist   of   New    York   State   stock, 
and  provided  that   all  other  securities   should  be,  or  be 
made  equal  to,  six  per  cent  stock,  to  be  received  at  not 
above   par   and  at  not   more  than   their    market    value. 
The  general  policy  of  the  New  York  free-banking  system 
furnished   the  groundwork   for   the    plan    on    which   the 
^present    National    banking   law    was  built  up.     In    1840 
the   State  of  New  York  required  its  banks  to   redeem 
their  notes  at  an  agency  to  be  established  either  in  New 


SILVER  THREE-CENT  PIECE,  1853. 

York  City,  Albany,  or  Troy,  as  well  as  at  the  home 
office.  The  redemption  at  the  agency  was  at  a  dis- 
count of  one-half  of  one  per  cent,  subsequently  reduced 
to  one-fourth  of  one  per  cent.  This  discount  was,  in 
practice,  divided  between  the  bank  whose  bills  were 
redeemed  and  the  redemption  agency.  Any  bank  neg- 
lecting to  provide  for  such  redemption  of  its  notes  was  to 
be  forced  to  wind  up  its  business.  The  Constitution  of 
this  State,  adopted  in  1846,  prohibited  the  Legislature 
from  granting  any  further  special  charters  to  banking  cor- 
porations; and  provided  for  the  formation  of  banking  insti-  / 
tutions  under  a  general  law.     It  also  provided  that  after  ^ 


142 

1850  the  stockholders  in  all  banks  issuing  circulating 
notes  should  be  responsible  for  all  the  debts  of  the  bank, 
of  every  kind,  in  an  amount  equal  to  their  stock  in  such 
bank.  In  case  of  the  bank's  insolvency  bill-holders  were 
preferred  to  all  other  creditors. 

In  Ohio  but  five  banks  were  authorized  before  18 16. 
In  that  year  six  new  banks  were  chartered  by  an  omnibus 
act  which  required  each  new  bank,  as  well  as  such  of  the 
old  ones  as  should  apply  for  an  extension  of  charter,  to  set 
apart  annually  for  the  use  of  the  State,  such  a  part  of  its 
earnings  as  would,  at  the  expiration  of  the  term  for  which 
its  charter  was  granted,  amount  to  one  twenty-fifth  of  its 
capital.  By  a  law  passed  in  1825  this  provision  was  so 
modified  as  to  require  each  bank  to  pay  to  the  State  two 
per  cent  on  all  dividends  theretofore  paid  and  four  per  cent 
upon  all  such  as  should  be  thereafter  declared.  From 
1 8 16  to  1834  thirteen  new  banks  were  authorized. 
Branches  of  the  Bank  of  the  United  States  having  been 
established  at  Chillicothe  and  Cincinnati,  the  Legislature, 
proceeding  upon  the  theory  which  then  obtained  in  Ohio 
and  other  States  that  the  State  should  participate  in  the 
profits  of  the  banking  corporations  which  it  created, 
levied  a  lump  sum  or  tax  of  $50,000  on  each  of  these 
branches  provided  they  should  remain  in  business  later  than 
September  i,  18 19.  The  bank  contested  this  tax,  how- 
ever, and  in  the  Supreme  Court  of  the  United  States 
obtained  a  decision  in  its  favor  and  denying  the  right  of  the 
States  to  tax  its  branches.  In  1845  ^^^  safety-fund  system 
was  applied  to  a  State  bank  then  authorized.  A  sum 
equal  to  ten  per  cent  of  the  circulating  notes  pf  the  bank 
was  to  be  paid  to  a  board  of  control,  to  be  by  it  invested  in 
Ohio  State  or  United  States  stocks,  or  in  bonds  secured 
by  first  mortgages  on  real  estate  of  double  the  value  of  the 


143 

security,  to  be  deposited  in  the  State  Treasury.     Sixty- 
three  branches  of  this  State  bank  were  created,  each  of 
which  was  treated  as  an  independent  institution  so  far  as 
depositing  security  and  receiving  the  interest  thereon  was 
concerned.      In  case  of  the  failure  of  any  branch  bank  its 
own  funds  and  securities,  not  deposited  In  the  safety  fund, 
were  to  be  applied   to  the  redemption  of  its  circulation 
before  the  safety  fund  could  be  called  on,  thus  giving  bill- 
holders  a  first  lien  on  all  its  assets.     The  safety-fund  act 
was  also  applied  to  a  portion  of   the  banks  previously 
existing,  and  the  same  statute  authorized  an  independent 
banking   system   which   provided  for  a  deposit  with   the 
State  Treasurer  of  United  States  or  Ohio  State  stocks,  to 
the  full  amount  of  the  circulating  notes  to  secure  their 
payment.     A  free-banking  law,  modeled  on  that  of  New 
York,    was    passed   in    1851,   but   the  new  Constitution, 
adopted  later  in  the  same  year,  materially  restricted  its 
operation.     The  revenue  laws  of   Ohio,  at   this    period, 
discriminated  strongly  against  the  banks,  subjecting  them 
to  double  and  three-fold  taxation,  as  compared  with  other 
forms    of  property    and    investment.      In    1856    another 
State  bank  was  created  by  law,  largely  on  the  lines  of  that 
of  1845,  but  with  a  clause  attaching  a  personal  liability  to 
the  ownership  of  the  stock.     Most  of  the  banks  organized 
under  the  law  of  185 1  were  taxed  into  liquidation,  and  in 
1856  upward  of  sixty  banks  in  this  State  were  in  bank- 
ruptcy,  more  or  less  complete.     In    1863   there  were  in 
Ohio  fifty-six  banks  doing  business  under  its  laws,  viz.: 
Seven   independent  banks  with  an  aggregate  capital   of 
$350,000;    three   free   banks  with    $1,270,000;    and    the 
State  Bank  of  Ohio  with  thirty-six  branches  and  an  aggre- 
gate capital  of  $4,054,000  and  $7,246,000  circulation.    The 
total  capital  of  all  the  banks   of  the    State,    when   the 


144 

National  banking  law  of  1863  went  into  effect,  was  $5,674,- 
000;  circulation,  $9,057,837;  specie,   $3,023,285. 

Early  banks  in  Indiana  were  few.  But  two  were 
chartered  previous  to  1820.  In  1834  the  State  Bank  of 
Indiana  was  chartered  with  ten  branches,  each  liable  for 
the  debts  of  all  the  others.  Each  share  was  to  pay  the 
State  an  annual  tax  of  twelve  and  one-half  cents,  and  was 
liable  to  all  taxes  assessed  upon  other  forms  of  capital, 
with  the  proviso  that  in  no  event  should  taxes  on  these 
shares  exceed  one  per  cent  in  the  aggregate.  The  cash 
capital  of  this  bank  was  largely  borrowed  at  the  East  upon 
the  credit  of  the  State,  which  not  only  took  $1,000,000 


THREE -DOLLAR  GOLD  COIN,  1854, 

of  its  Stock  directly,  but  also  loaned  its  credit  to  individual 
stockholders  to  the  extent  of  one-half  their  subscriptions, 
taking  individual  bonds  secured  upon  real  estate  at  one- 
half  its  value,  for  the  re-payment  of  the  sums  so  advanced. 
This  bank  paid  dividends  averaging  twelve  to  fourteen 
per  cent  annually,  and  weathered  the  panic  of  1837  with- 
out loss  of  capital  or  prestige.  It  went  into  liquidation  in 
1854,  on  the  expiration  of  its  charter,  and  returned  to  its 
stockholders  nearly  double  the  par  value  of  their  stock. 
The  State  of  Indiana  received  about  $3,000,000  from  its 
investment  of  $1,000,000  in  this  institution,  as  well  as 
payment  in  full  of  all  sums  for  which  it  became  surety.  In 
185 1  Indiana  adopted  a  new  Constitution  which  prohibited 
^    the  further  creation  of  banking  corporations  except  under 


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a  general  law.  The  general  banking  act.  adopted  in 
1852  in  pursuance  of  this  constitutional  provision,  required 
the  deposit  of  stocks  of  that  State  or  of  the  United  States 
as  security  for  the  circulation  of  all  banks  formed  there- 
after. A  new  State  bank  chartered  in  Indiana  in  1854 
on  the  expiration  of  the  charter  of  the  first  State  bank' 
had  a  capital  of  $6,000,000,  was  excellently  managed  and 
passed  through  the  panic  of  1857  without  suspending 
specie  payments. 

In  Illinois  a  State  bank  was  chartered  in  182 1  with  a 
capital  of  $500,000.     It  was  owned  by  the  State.     It  had 
no  real  capital  and  was   little,    if  any,    better    than   the 
schemes  for  the  emission  of  bills  of  credit  to  be  lent  to  all 
comers,  which  flourished  in  the  colonies  during  the  last 
century.     Of  its  notes  $300,000  were  issued  and  loaned  to 
citizens  of  the  State,  not  more  than  $1,000  to  one  person, 
upon  real  estate  mortgage,  for  one  year,  at  six  per  cent 
interest.      These   notes    were  made  receivable  for  taxes 
and  for  all  debts  due  the    State   and   the   bank.     They 
rapidly  depreciated  and  after  passing  for  a  time  at  twenty- 
five  cents  on  the  dollar,  became  wholly  discredited  and 
ceased  to  circulate.     In  1835  a  new  State  bank  was  incor- 
porated with  a  capital  of  $500,000.  afterward  increased  to 
$2,000,000,  which  was  also  owned  by  the  State  and  man- 
aged and  controlled   by  the  Legislature.     It  suspended 
specie    payment  during  the  panic  of  1837-38  and  never 
recovered  sufficiently  to  resume.     In   1843  this  bank  and 
the  old  Shawneetown  bank  in  which  the  State  had  a  con- 
trolling interest,  were  wound  up  under  a  law  passed  that 
year   which  practically  confiscated  the  property  of  private 
stockholders,  depositors  and  bill-holders.     The  State  took 
possession  of  its  bonds  amounting  upward  of  $3,000,000, 
which  these  banks  held  as  security  for  their  bill-holders  and 


(10) 


146 

depositors,  and  caused  the  same  to  be  burned  in  the  old 
State  House  Square  at  Springfield,  in  the  presence  of  the 
Legislature.  In  1843  a  free-banking  law  was  adopted, 
modeled  on  the  provisions  of  the  earliest  free-banking  acts 
of  New  York  and  Indiana.  The  securities  deposited  by  the 
free  banks  in  Illinois  were  almost  wholly  those  of  extreme 
southern  and  south-western  States,  the  values  of  which 
fluctuated  so  widely  and  continually  as  to  deprive  the  bills 
secured  thereby  of  any  settled  value.  Under  the  Consti- 
tution of  1870  State  banking  ceased  in  Illinois  so  far  as 
the  creation  of  new  banks  was  concerned. 

In  nearly  all  of  the  southern  and  western  States 
banks  were  incorporated,  during  the  period  under  con- 
sideration, in  which  the  State  had  an  interest,  partial  or 
exclusive.  Free-banking  systems  were  also  generally 
adopted,  after  1850,  with  provisions  for  the  security  and 
redemption  of  circulating  notes,  purely  formal  and  useless 
in  some  and  effective  and  substantial  in  others.  The 
result  in  all  the  other  States  was  like  that  in  one  or 
another  of  those  whose  experience  is  hereinbefore  epito- 
mized. Indiana  and  Louisiana  managed  their  banks  with 
increasing  and  conspicuous  prudence  and  success.  To 
award  justly  the  palm  for  pre-eminent  badness  would  be 
a  task  as  difficult  as  unprofitable.  We  have  noticed  the 
case  of  those  States  which,  by  constitutional  limitation,  for- 
bade the  granting  of  special  banking  charters.  Where- 
ever  obtainable  these  special  charters  were  in  great 
demand  because  of  the  laxness  which  universally  charac- 
terized their  provisions.  The  abuse  of  any.  State  system 
which  did  not  provide  for  the  redemption  at  the  State 
capital  or  other  business  center,  of  the  bills  of  every 
bank  authorized  to  do  business  within  its  limits,  was  easy 
and   inevitable.     A   common  plan  was  to  obtain  in  one 


147 


State  a  charter  for  a  bank  to  be  located  at  some  obscure 
and  inaccessible  point  where  no  occasion  existed  for  any 
legitimate    banking    facilities,    and   to    procure,    on    the    '' 
deposit  of  doubtful  and  inadequate  security,  an  issue  of 
bank  bills  which  were  at  once  taken  to  a  distant  State  to 
be  put  in  circulation  among  a  people  having  no  means  of 
procuring  redemption.     Charters  issued  in  Georgia  were 
sold  to  be  used  for  putting  a  flood  of  worthless  bank-notes 
m   circulation    in    Illinois.     Banks    ostensibly    located   in 
New  Jersey  had  all  their  business  operations  conducted 
in  other  States.     The   notes  of  all  banks  except  those 
located  in  large  commercial  cities,  were  always  at  a  dis-" 
count.     At  New  York  a  discount  of  one-eighth  of  one  per 
cent  was  charged  on  the  bills  of  New  England   banks 
redeemable  at  the  Suffolk  bank.     The  common  rate  of 
discount  on  the  bills  of  banks  which  redeemed  their  cur- 
rency only  over  their  own  counters  was  from  one  to  five 
per  cent,  and  often  greatly  exceeded  that  rate.     Five  per 
cent  on  the  entire  circulation  of  all  the  banks  in  the  United 
States  IS  estimated  to  have  been  lost  each  year  to  the  bill- 
holders  by  discount  and  brokerage.     Losses  by  insolvency      y 
were  much  greater.     The  losses  and  vexation  occasioned     ' 
by  the  circulation  of  counterfeits   and   notes  of  broken 
banks  was  something  incredible  to  one  accustomed  only 
to  the  currency  of  to-day. 

In    1837  a  general  suspension   of  specie   payments     , 
took  place,  occasioned  by  the  revulsion  and  panic  of  that 
year.     A  partial  resumption  in    1838  was  followed  by  a 
second    suspension  in   1839,  which  was  especially  disas-     y 
trous  in  the  West  and  South.     The  reckless  management    "^ 
of  the  Bank  of  the  United  States,  then  operating  under  a 
charter  from  the  State  of  Pennsylvania,  was  the  principal 
occasion   of  this  second  crash.      Whatever  the  previous 


148 

merit  or  demerit  of  that  bank  may  have  been,  its  course 
at  this  time  was  such  as  to  justify  the  most  severe  con- 
demnation, as  its  policy  -was  directed  to  forcing  a  run  on, 
and  suspension  of,  the  New  York  banks  in  order  to  bring 
on   another  complete   suspension.     A  general   and    final 
resumption   of  specie   payments   was   not   effected   until 
1842.     In  1857  another  panic  caused  another  general  sus- 
pension of  payment  by  the  banks.     This  revulsion,  like  so 
many  others  in  this  country,  was  occasioned  by  expansion  '- 
and  overtrading.     The  first  actual  shock  was  the  failure 
of  the   Ohio  Life  and  Trust  Company    on    August    24, 
1857.     This  concern  had  borrowed    largely,   on   call,   in 
New  York  and  had  loaned  its  funds  improvidently.     Its 
liabilities  were  about  $7,000,000,  and  its  credit  had  been  so 
high  that  its  failure  shook  confidence  in  other  institutions. 
A  desire  to  test  the  foundations  of  credit  was  followed  by 
a  general  collapse.     It  had  been  the  rule  among  banks  to 
keep  on  hand  specie  to  the  amount  of  one-third  of  out- 
standing bills.     During  the  period  of  activity  which  pre- 
ceded 1857  this  wholesome  rule  had  been  greatly  relaxed 
and  few  banks  in  the  interior  possessed  a  specie  reserve 
exceeding  one-twelfth  the  total  of  their  circulating  notes. 
,  The  loss  of  the  steamer    Central  America  with  a  million 
in  gold  helped  to  create  a  momentary  stringency  in  New 
York.     Collections    on    interior   points   began   to    drag. 
Failures  of  banks,  brokers  and  produce  dealers  became 
numerous,  and  on   September   12  and   13    the   banks  at 
nearly  all  points  south  and  west  of  New  York  suspended 
payment.     On  October  13,    1857,  the  New  York  banks 
suspended  and  the  New  England  and  Boston  banks  fol- 
lowed a  few  days  later. 

The  panic  forced  a  speedy  liquidation  of  all  inflated 
/schemes  and  enterprises,  and,  as  the  country  was  at  the 


!/ 


149 

bottom,  in  a  genuinely  prosperous  condition,  the  recovery 
was  prompt  and  easy.  Imports  stopped  almost  com- 
pletely. Gold  flowed  in  from  Europe.  The  New 
Orleans  banks,  nine  in  number,  had  suffered  least  of  all. 
But  four  of  these  suspended,  and  they  for  a  few  days  only. 
The  New  York  banks  resumed  in  a  body  on  December 
12,  and  all  others  followed  gradually  and  informally. 

In  the  years  preceding  i860  the  growth  of  bank  ^ 
capital  had  been  rapid.  At  the  East  it  was  for  the  most 
part  actual  capital  to  be  loaned  or  advanced  on  bona  fide 
business  paper,  or  against  commodities  in  transit.  At 
the  West,  however,  the  increase  represented  credits,  and 
took  the  form  of  circulation  rather  than  loans.  The  basis 
of  this  circulation  was  Western  and  Southern  stocks  and  it 
was  kept  afloat  as  long  as  exchanges  favored  those  sec- 
tions. Political  events  affected  the  current  of  exchange 
in  i860.  In  that  year  two  hundred  and  twenty-two  banks 
in  Indiana,  Illinois  and  Wisconsin  had  on  deposit,  to '' 
secure  circulation,  about  $15,000,000  of  the  stocks  of  , 
States  which  passed  ordinances  of  secession.  This  action 
of  these  States  caused  an  average  depreciation  exceeding 
sixty  per  cent  of  the  stock  so  deposited.  The  circulation 
of  each  bank  depreciated  in  direct  ratio  to  that  of  the 
bonds  pledged  for  its  security.  Ruinous  confusion  accom- 
panied the  depreciation  of  this  "stump-tail  money." 
Most  of  the  Western  State  banks  were  driven  into  liqui- 
dation. In  Illinois  ninety-four  failed,  in  Wisconsin 
more  than  one  hundred,  and  proportionate  numbers  in 
other  States.  The  circulation  of  three  Illinois  banks 
which  failed,  was  redeemed  at  par;  that  of  fifty- seven 
others  at  from  fifty  to  eighty  cents  on  the  dollar;  and  that 
of  those  remaining  at  a  much  smaller  rate.  It  is  undoubt- 
edly true  that  a  large  portion  of  this  decline  in  the  value    " 


ISO 

of  stocks  pledged  to  secure  circulating  notes  wafe  due  to 
the  forced  sale  of  these  securities.  It  was  the  duty  of  the 
State  officers  to  sell  the  stocks  at  once,  and  to  redeem  the 
bills  of  the  bank  as  far  as  the  proceeds  would  extend  when 
paid  pro  rata.  It  was  the  vice  of  the  old  free-banking 
system  that  it  required  that  securities  should  be  sold  at 
the  moment  the  market  was  least  able  to  absorb  them. 
Hence,  unless  the  margin  was  very  large,  the  circulation 
was  never  paid  in  full. 


r 


Chapter  X. 

THE     SUSPENSION     OF     SPECIE     PAYMENTS 

IN  1861. 

The  condition  of  the  country  at  the  opening-  of  the 
year  1861  was  unusually  prosperous  from  a  material 
standpoint.  The  crops  of  i860  had  been  very  large  both 
in  the  North  and  the  South.  The  cloud  on  the  com- 
mercial horizon  caused  by  the  position  taken  by  the 
Southern  States  was  particularly  threatening  after  the 
election  of  Lincoln,  and  a  general  contraction  of  business 
occurred.  Mr.  Lincoln  selected  Salmon  P.  Chase,  of  Ohio, 
for  his  Secretary  of  the  Treasury,  and,  the  Southern  mem- 
bers of  Congress  having  left  Washington,  measures  were 
immediately  taken  to  replenish  the  National  treasury,  — at 
that  time  actually  bankrupt,  —  and  to  prepare  for  an 
impending  storm  which  every  one  believed  was  sure  to 
come  but  which  was  thought  likely  to  be  of  short  duration. 

Secretary  Chase  found  authority  vested  in  him  by 
previous  Congressional  action  to  raise  money  by  loans, 
and  on  March  22,  1861,  he  advertised  proposals  for  a 
loan  of  $8,000,000.  Most  of  the  loan  contracted  by  Gen- 
eral Dix,  predecessor  to  Mr.  Chase,  had  been  absorbed 
by  banks  for  currency  and  by  savings  banks  and  individ- 
uals for  investment,  and  the  question  before  Secretary 
Chase  was  as  to  the  most  advisable  form  in  which  the 
loan  should  be  negotiated,  whether  by  long-time  bonds 
or  six  per  cent  treasury  notes.  Public  opinion  was  divided 
as  to  the  merits  of  the  question,  and  the  Secretary  divided 


152 

the  loan  nearly  equally,  giving  bonds  for  $3,099,000  and 
for  the  remainder  he  issued  treasury-notes,  payable  to  the 
order  of  the  persons  who  received  them,  bearing  six  per 
cent  interest  payable  semi-annually,  convertible  into  bonds, 
and  receivable  for  public  dues.  They  were  not  legal 
tender  between  individuals,  and  did  not  form  a  forced 
currency. 

On  May  11  Secretary  Chase  advertised  proposals 
for  the  unnegotiated  portion  of  the  loan  of  $25,000,000 
authorized  February  8,  1861,  amounting  to  $8,994,000. 
Fort  Sumter  had  been  attacked  and  credit  was  lower 
than  before,  but  bonds  were  sold  amounting  to  $7,310,000 
at  a  rate  ranging  from  eighty-five  to  ninety-three  per  cent. 
The  remainder  of  the  loan  was  taken  in  treasury-notes  at 
par.  A  little  later  he  issued  $12,584,550  in  treasury- 
notes  to  offerers  and  public  creditors. 

The  first  report  of  Secretary  Chase  to  Congress 
estimated  the  Government's  financial  requirements  for  the 
year  to  be  $318,519,581.87,  and,  suggested  that  $240,- 
000,000  should  be  borrowed,  and  $80,000,000  raised  by 
taxation.  He  also  suggested  raising  the  duty  on  sugar 
and  placing  tea  and  coffee,  theretofore  free,  upon  the 
dutiable  list.  Of  the  last-mentioned  sum  he  believed 
$20,000,000  could  be  raised  by  direct  taxation.  He 
recommended  the  opening  of  subscriptions  for  a  National 
loan  of  $100,000,000  to  be  issued  in  treasury-notes  bear- 
ing 'J. 2)  interest  and  redeemable  three  years  from  date. 
Should  sufficient  money  not  be  received  by  that  mode  he 
suggested  the  issue  of  $100,000,000  in  bonds,  bearing 
seven  per  cent  interest,  to  run  thirty  years.  He  also 
asked  for  authority  to  issue  treasury-notes  amounting  to 
$50,000,000  in  $10,  $20,  and  $25  denominations,  bearing 
3.65  per  cent  interest.     The  necessary  bills  were  passed 


^zshmS^MS? 


I 


153 

immediately  and  the  Secretary  was  given  the  desired 
authority.  On  August  5  a  bill  was  passed  authorizing/ 
the  issue  of  twenty-year  bonds  at  six  per  cent,  and  the  . 
issue  of  five-dollar  treasury-notes.  Revenue  bills  were 
also  passed  by  which  it  was  hoped  sufficient  money  would 
be  brought  into  the  treasury,  in  addition  to  the  receipts 
from  loans,  to  carry  the  Government  through  the  danger. 

In  November,  i860,  the  banks  of  Boston,  New  York 
and  Philadelphia  had  recognized  coming  danger  and  had 
banded  together  to  enable  them  better  to  sustain  the 
Government  should  it  become  necessary.  The  coin  pos- 
sessed by  them  was  placed  in  a  common  fund.  To  this 
association  of  banks  Secretary  Chase  applied  for  money. 
They  agreed  to  take  an  immediate  issue  of  treasury-notes 
amounting  to  $50,000,000,  having  three  years  to  run  at 
7.30  per  cent,  with  the  privilege  of  taking  fifty  millions 
more  October  15  and  fifty  millions  more  December  15, 
should  the  latter  sum  not  be  subscribed  by  the  people. 
The  Secretary  was  to  negotiate  no  other  evidences  of 
debt  except  those  payable  on  demand,  and  the  three  mil- 
lion Oregon  war  loan.  Secretary  Chase  then  issued  for 
urgent  exigencies  $26,896,784  in  six  per  cent  treasury- 
notes. 

"To  insure  the  success  of  the  bank  loan,  the  expe-  ^ 
dient  of  issuing  clearing  house  certificates,  and  of  appro- 
priating and  averaging  all  the  coin  in  the  various  banks  as 
a  common  fund,  was  adopted. "     The  capital  of  the  asso- 
ciated banks  was  $120,000,000,  and  they  possessed  $63,- 
165,039  in  coin  to  meet  $142,381,956  of  liabilities.     The 
banks  earnestly  urged  Secretary  Chase  to  suspend  the 
operations  of  the  sub-treasury  Act  and  draw  his  checksX 
in    disbursing    money,    thus    making    of    his    checks   a  \ 
circulating   medium,  and  leaving  the  gold  in  possession  y 


154 

of  the  banks,  where  it  was  important  that  it  should 
remain.  He  steadily  refused  to  do  this,  and  the  banks 
unfortunately  failed  to  force  him  to  adopt  that  course. 

Secretary  Chase  began  early  in  August  to  circulate 
demand  notes,  redeemable  in  coin,  of  which  he  had  none 
and  for  which  he  was  dependent  on  the  banks.  Upon 
protestation  by  the  banks  against  this  currency  inflation 
he  assented  to  their  wishes,  and  they  began  to  pay  the 
Government  gold  which,  by  reason  of  the  rapid  payments 
by  the  Government,  reached  them  again  in  about  one 
week. 

The  subscriptions  by  the  people  to  this  National  loan 
amounted  to  $24,678,866,  whereupon  banks  agreed  to 
take  the  whole  issue  of  notes  to  be  sold  by  them  to  the 
people.  On  November  16,  the  third  installment  of  $50,- 
000,000  in  six  per  cent  bonds  was  taken  by  the  banks. 
In  November  the  Secretary,  disregarding  the  wishes  of 
the  banks,  again  issued  demand-notes,  and  in  order  to 
sustain  the  value  of  specie,  the  banks  were  obliged  to 
accept  them  only  as  special  deposits.  The  holders 
demanded  specie  for  them,  with  the  result  that  the  gold 
reserves  fell  to  such  an  extent  that  on  December  30,  t86i, 
the  banks  suspended  specie  payment  in  order  to  save  the 
gold  which  they  still  had.  The  Government  could  but 
simply  follow  the  course  of  the  associated  banks,  and  all 
the  banks  in  the  country  also  suspended  at  the  same  time. 
This  suspension  seems  to  have  been  entirely  unnecessary, 
as  it  could  have  been  avoided  had  the  Secretary  not  per- 
sisted in  the  circulation  of  demand-notes  against  the 
wishes  and  advice  of  the  banks,  and  failing  to  adopt  the 
forms  of  business  which  permitted  the  payment  of  indebt- 
edness by  checks,  drafts,  etc.,  without  disturbing  the 
specie  reserve. 


Chapter  XI. 
THE  ISSUE  OF  LEGAL  TENDER  NOTES. 

• 

In  his  report  for  December,  1861,  Secretary  Chase 
had  recommended  the  estabHshment  of  a  National  banking 
system,  saying  that  its  advantages  would  be:  "A  cur- 
rency of  uniform  security  and  value,  protection  from  losses 
in  discount  and  exchanges,  increased  facilities  to  the  Gov- 
ernment in  obtaining  loans,  a  diminution  in  the  rate  of 
interest,  or  a  participation  by  the  people  in  the  profits  of 
circulation,  an  avoidance  of  the  perils  of  a  great  money 
monopoly,  and  a  distribution  of  the  bonds  of  the  nation  to 
the  leading  monetary  associations  of  the  country,  thus 
identifying  their  interests  with  those  of  the  Government. " 

In  accordance  with  the  recommendations  of  the  Sec- 
retary a  sub-committee  of  the  Committee  on  Ways  and 
Means  had  been  engaged  for  some  time  in  preparing  a 
bill  to  create  a  National  bank  system,  but  on  the  ground 
that  it  could  not  be  made  available  soon  enough  to  meet 
the  pressing  needs  of  the  Government,  a  bill  was  pre- 
pared by  Elbridge  Gerry  Spaulding,  of  Buffalo,  N.  Y.,  a 
member  of  the  committee,  and  introduced  into  the  House 
of  Representatives  two  days  after  the  banks  suspended 
specie  payments,  to  relieve  the  necessities  of  the  Treasury 
Department  at  once.  This  bill  authorized  the  Secretary 
"to  issue  $50,000,000  of  treasury-notes  on  the  faith  of  the 
United  States,  payable  on  demand,  without  specifying  any 
place  of  payment,  and  of  such  denominations  as  he  may 
deem  expedient,   not  less  than  five  dollars   each,   which 


156 

shall  be  receivable  for  all  debts  and  demands  due  to  the 
United    States,    and    for    all    salaries,    dues,    debts    and 
demands  owing  by  the  United  States  to  individuals,  cor- 
porations and  associations  within  the  United  States;  and 
such  notes  shall  also  be  a  legal  tender  in  payment  of  all 
debts,    public   or   private,   within  the  United  States,  and 
shall  be  exchanged  at   any  time  at  their  par  value  the 
same  as  coin,  at  the  Treasury  of  the  United  States  and 
the  offices  of  Assistant  Treasurers  in  New  York,  Boston, 
Philadelphia,   St.    Louis,   and  Cincinnati,  for  any   of  the 
coupon  or  registered  bonds  which  the  Secretary  of  the 
Treasury  is  now,  or  may  hereafter  be,  authorized  to  issue; 
and  such  treasury-notes  may  be  re-issued  from  time  to 
time  as  the  exigencies  of  the  public  service  may  require. " 
The  fact  that  the  bill  was  before   the  House   called 
delegates  from  the  associated  banks  to  Washington.    They 
submitted  a  plan  for  raising  money  to   carry  on   the  war 
which  was  not  approved.     They  then  approved  the  Sec- 
retary's scheme  for  raising  money  and  creating  the  sys- 
tem of  National  banks,  and  submitted  a  plan*  which  pro- 
vided that  the  banks  should  receive  and  pay  United  States 
notes  freely  and  sustain  the  public  credit;  the  Secretary 
would  pay  daily  sums  of  $1,500,000  in  such  notes,  and 
within  two  weeks  pay  $20,000,000  in  seven-thirty  bonds; 
the  issue  of  demand-notes  not  to  be  increased  beyond  the 
$50,000,000  authorized  in  July,  1861;  Congress  to  extend 
the  loan  acts  to  enable  the  Secretary  to  issue  notes  pay- 
able in  one  year  bearing  3.65  per  cent  interest  and  con- 
vertible  into  seven  thirty-three-year  bonds,  in  exchange 
for   demand-notes;    or   enable  the   Secretary  to  borrow 
under  existing  provisions  $300,000,000.     The  delegates 
recommended  the  passage  of  the  National  currency  bank 
bill,  and  believed  that  this  action   and  liquidation  would 

*  Bolle's  "Financial  Hiitory  of  the  United  States,"  vol.  3,  p.  48. 


^Jl^TWkJ      (\}^ 


157 

make  the  demand-notes  a  legal  tender.     This  plan   was 
not  approved  by  the  Legislative  committees. 

The  legal  tender  bill  passed  the  House  providing  for 
the  issue  of  notes  to  $150,000,000,  retiring  the  $50,000,- 
000  authorized  in  July,  1861,  and  authorizing  the  issue  of 
$500,000,000  in  coupon  or  registered  bonds  to  run  for 
twenty  years  at  six  per  cent.  The  bill  was  reported  to 
the  Senate  February  10,  1862,  but  the  treasury  being 
nearly  empty  a  temporary  relief  bill  was  passed  by  both 
Houses  authorizing  the  issue  of  $10,000,000  in  treasury- 
notes  payable  on  demand. 

As  the  Senate  made  some  amendments  to  the  legal- 
tender  bill,  it  went  back  to  the  House,  which  accepted  the 
most  important  of  them;  these  provided  that  the  notes 
,  should  be  legal  tender  for  every  demand  against  the  United 
States  except  for  interest  on  bonds  and  notes,  which 
should  be  paid  in  coin;  that  the  bonds  should  be  redeem- 
able in  five  years  and  payable  in  twenty  years;  that  the 
bonds  might  be  sold  by  the  Secretary  at  the  market  price 
for  coin  or  treasury-notes;  that  deposits  could  be  made  with 
sub-treasurers,  and  that  all  duties  and  the  proceeds  from 
the  sale  of  public  lands  should  be  set  apart  to  pay  coin 
interest  on  the  national  debt,  and  one  per  cent  for  a  sink- 
ing fund.  Thus  the  bill  became  a  law  on  February  25, 
1862,  and  the  most  important  financial  measure  of  modern 
times  was  created  by  the  pressure  of  an  irresistible 
necessity. 

In  March  Secretary  Chase  succeeded  in  getting  Con- 
gress to  make  the  demand-notes  issued  in  accordance 
with  the  authorization  of  July,  1861,  and  the  ten  millions 
in  the  following  February,  legal  tender,  so  that  they  might 
circulate  in  common  with  the  others.  On  June  7,  1862, 
the  Secretary  requested  the  issue  of  $150,000,000  more 


158 

legal  tenders,  and  Congress  passed  a  bill  on  July  ii, 
1862,  authorizing  their  issue,  of  which  $50,000,000  should 
be  in  denominations  less  than  $5. 

The  premium  on  gold  had  advanced  very  rapidly 
after  the  issue  of  legal  tender,  and  that  metal  was  heavily 
exported.  By  August,  1863,  all  specie  had  disappeared 
from  circulation,  consequent  upon  the  suspension  of  specie 
payments,  and  on  July  1 7  a  bill  was  passed  making  it  legal 
to  use  postage  stamps  in  payments  to  the  Government 
not  exceeding  $10.  The  lack  of  small  change  was  so 
great  that  corporations  and  business  men  had  begun  to 
issue  "shin-plasters,"  as  they  were  called,  and  municipali- 
ties issued  small  notes  receivable  for  taxes  or  payable  in 
lawful  money.  The  law  authorizing  the  use  of  postage 
stamps  also  forbade  this  mock  currency.  The  needs  of 
the  country  were  so  great  that  Congress  had  passed  an 
act  on  March  3,  1862,  permitting  the  Secretary  to  issue 
not  to  exceed  $50,000,000  in  currency  in  fractional  parts 
of  a  dollar.  This  was  kept  in  circulation  until  1876,  when 
it  was  replaced  by  silver. 

The  next  issue  of  paper  money  was  to  pay  the  sol- 
diers, and  by  an  act  of  January  17,  1863,  the  issue  of 
$100,000,000  was  authorized  for  this  purpose. 

The  sources  of  income  which  the  Government  enjoyed 
had  proved  so  insufficient  that  the  issue  of  legal-tender 
notes  had  been  very  rapid  after  it  had  once  begun.  The 
banks  refused  further  loans  after  the  $150,000,000  had 
been  advanced,  and  the  sale  of  bonds  was  very  slow. 
The  law  authorizing  the  payment  of  interest  on  deposits 
with  the  sub-treasurers  up  to  $25,000,000  was  taken 
advantage  of  by  New  York  clearing  house  bankers  so 
quickly  that  the  amount  was  soon  afterward  raised*  to 

♦June,  1864, 


159 

$  1 50,cxx),ooo.     In   effect  these  deposits   formed  a   loan 
from  the  banks  to  the  Government. 

Other  temporary  loans  were  effected  in  the  form  of 
certificates  of  indebtedness  issued  to  creditors  of  the  Gov- 
ernment, and  for  a  time  the  demands  on  the  treasury 
were  thus  met  by  the  Secretary.  The  bonds  not  having 
sold  rapidly  the  experiment  was  made  of  inflating  the  cur- 
rency to  such  an  extent  that  money  would  be  so  plentiful 
that  people  would  be  glad  to  pay  it  back  to  the  Govern- 
ment for  its  bonds,  and  a  bill  for  a  loan  of  $900,000,000 
was  prepared  on  that  basis.  Before  the  bill  was  passed, 
the  requirements  of  the  army  and  navy  were  such  as  to 
cause  the  passage*  of  the  bill  before  mentioned,  authoriz- 
ing the  issue  of  $100,000,000  legal  tender. 

In  March,  1863,  Congress  passed  a  bill  authorizing 
the  Secretary  to  effect  a  loan  of  $300,000,000  in  that 
year,  and  $600,000,000  the  following  year,  the  bonds  to 
run  not  less  than  ten  nor  more  than  forty  years.  The  Act 
also  authorized  the  issue  of  $400,000,000  in  treasury- 
notes  payable  in  three  years,  which  might  be  made  legal 
tender  if  the  Secretary  thought  best.  The  issue  of 
$  1 50,000,000  in  legal  tender  notes  was  authorized  if  the 
exigencies  of  the  service  demanded  it. 

Through  the  agency  of  Jay  Cooke  the  sale  of  the 
five-twenty  six  per  cent  bonds  was  successfully  carried  out 
in  1863,  but  the  effort  to  sell  the  five  per  cent  bonds  in 
the  same  manner  was  a  failure.  The  demands  for  money 
were  then  met  by  the  issue  of  certificates  of  indebtedness, 
and  by  a  loan  from  the  banks  of  $50,000,000,  for  which 
they  took  interest-bearing  legal- tender  notes.  Later  in 
1863  $35,000,000  more  in  legal-tender  notes  were  offered 
through   Jay   Cooke   and    Company.     By   the    issues   of 

•January  17,  1863, 


i6o 

$168,471,450  in  interest  bearing  notes,  and  the  money 
received  from  taxes,  etc..  Secretary  Chase  was  able  to 
meet  the  demands  of  the  Government.    . 

On  July  I,  1864,  Secretary  Chase  was  succeeded  by 
William  Pitt  Fessenden,  United  States  Senator  from 
Maine.  As  the  organization  of  a  National  banking  sys- 
tem had  been  recommended  in  the  first  report  made  by 
Secretary  Chase,  we  will  revert  to  the  early  part  of  his 
administration  in  order  to  trace,  in  another  chapter,  the 
history  of  the  National  Bank  Act. 


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IHOSJ.STONE     PRES'T 
GEO.  MURPHY  V.  PRE S'ts 
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^peeisil   8  prompt    sittention   giver^   ho  collections. 


Chapter  XII. 
THE   NATIONAL    BANK   ACT. 

In  1 86 1  there  were  i,6oi  State  banks  in  existence, 
possessing  a  capital  of  $429,000,000.  These  banks  had 
in  circulation  over  ten  thousand  kinds  of  notes.  In  New 
York  the  free-banking  system  was  working  satisfactorily, 
and  in  New  England  the  Suffolk  bank  system  met  the 
demands  of  the  times.  The  opposition  of  the  Demo- 
cratic party  had  successfully  prevented,  up  to  that  time, 
any  establishment  of  a  Government  bank.  Secretary 
Chase  was  anxious  to  replace  the  system  of  State  banks 
with  one  of  National  banks,  and  his  report  to  Congress  in 
December,  1861,  contained  two  plans,  the  first  of  which 
contemplated  the  gradual  withdrawal  from  circulation  of 
the  notes  issued  by  private  corporations  and  the  substitu- 
tion therefor  of  United  States  notes,  payable  in  coin  on 
demand,  in  amounts  sufficient  for  the  useful  ends  of  a  rep- 
resentative currency.  His  second  plan  contemplated  the 
preparation  and  delivery  of  notes  to  institutions  for  circu- 
lation under  National  direction,  secured  by  the  pledge  of 
United  States  bonds,  and  convertible  into  coin. 

The  views  of  the  Secretary  were  embodied  in  a  bill 
prepared  by  Mr.  Spaulding  and  other  members  of  the 
Committee  on  Ways  and  Means.  The  bill  was  a  com- 
bination of  the  best  features  of  the  banking  laws  of  the 
several  States.  It  was  adversely  reported  upon  by 
Thaddeus  Stevens,  chairman  of  the  committee,  probably 
because  the  issue  of  legal-tender  notes  at  that  time  seemed 

161 


164 

that  upon  proper  examination  it  should  receive  from  the 
Comptroller  circulating  notes  equal  in  amount  to  ninety 
per  cent  of  the  current  value  of  the  bonds  transferred, 
but  not  exceeding  ninety  per  cent  of  the  par  value  of  said 
bonds;  notes  to  an  amount  not  exceeding  $300,000,000 
to  be  issued  under  the  Act;  notes  to  be  receivable  for 
everything  except  duties  on  imports,  and  payable  for 
everything  save  interest  on  the  public  debt,  and  in 
redemption  of  the  National  currency;  interest  to  be  regu- 
lated by  local  laws,  but  not  to  exceed  seven  per  cent;  each 
bank  in  St.  Louis,  Louisville,  Chicago,  Detroit,  Mil- 
waukee, New  Orleans,  Cincinnati,  Cleveland,  Pittsburgh, 
Baltimore,  Philadelphia,  Boston,  New  York,  Albany, 
Leavenworth,  San  Francisco  and  Washington  at  all  times 
to  have  on  hand  in  lawful  money  of  the  United  States 
at  least  twenty-five  per  cent  of  the  amount  of  its  notes 
in  circulation  and  its  deposits,  and  all  others  to  keep  a 
reserve  of  not  less  than  fifteen  per  cent;  in  the  months  of 
January  and  July  one-half  per  cent  of  the  average  amount 
of  its  notes  in  circulation,  and  a  duty  of  one-quarter  per 
cent  each  half-year  upon  the  average  amount  of  its 
deposits,  and  a  duty  of  one-quarter  per  cent  each  half- 
year  on  the  average  amount  of  its  capital  stock  beyond 
the  amount  invested  in  United  States  bonds,  to  be  paid; 
that  any  State  bank  could  become  a  National  bank  under 
this  Act. 

The  State  banks  had  been  gradually  inflating  their 
issues  of  paper  ever  since  the  suspension  of  specie  pay- 
ments. It  was  considered  very  desirable  to  do  away  with 
this  voluntary  currency,  which  had  become  very  unstable 
and  was  subject  to  considerable  discount,  and  replace  it 
with  a  uniform  National  currency.  The  change  from 
State  to  National  banks  was  much  desired,  and   Legisla- 


MICHIGAN  CENTRAL 


-jTlElJlAGAI^A  fALLS  l^UT 


•^ Solid*-  ^ESTiBULeo  -jTrkinsi^ 


NOW    RUN    OVER    THE 


MiCfflGM  (TentralRulroad 

••THE     NIAGARA     PALLS     ROUTE." 
AND    THE     NEW   .YORK    CENTRAL    AND    BOSTON    &    ALBANY    RAILROADS    PROM 

CHICAGO   TO   NEW   YORK   AND    BOSTON. 

Thase  Trains  are  not  only  aqulpped  with  tha  finest  Wagner  Palace  Sleeping ^Cars,  but  are  made  thoroughly 

complete  by  having 

*^  \/estib\jled  Dlrvirvg,  SmoUing,  First-Glass  ar\d  Baggage  Gars.  -^ 

And,  although  constituting  the  Pamous  Limited  Trains  of  the  Michigan  Central,  will  carry  ail  classes  of 

passengers  without  extra  charge. 

Leaves  CHICAGO  Eastward,  3.IO  P.  M.,  and  DETROIT  I0.56  P.  M.,  Dally. 

Westward  from  BUFFALO,  6.35  A.  M.,  and  DETROIT  I.20  P.  M.,  Dally. 

L.  D.  HEU8NER,  Pas8ens«r  and  Ticket  Agent, 

No,  67  CUrk  Street,  cor,  Randolph,  and  Depots  foot  of  Lake  Street,  and  foot  of  33d  Street,  Chicago, 


t.  O.  BROWN, 

Ccnenl  Superiatcadeiit,  Detroit 


W.  R.  BUSENBARK, 

An't  General  Passenger  Agent,  Chicago. 


O.  W.  RUOOLE8, 

Gen'l  Pan.  and  Tkt.  Agent,  Chicago. 


i65 

tures  had  passed  laws  to  aid  State  banks  to  reorg-anize 
under  the  National  system.  The  new  law  did  away  with 
the  restriction  that  National  banks  should  be  known  by 
numeral  titles,  and  permitted  converted  State  banks  to 
retain  the  distinctive  names  under  which  business  had 
formerly  been  carried  on.  The  first  National  bank  to  be 
known  by  a  title  other  than  a  numeral  one  was  the 
National  Exchange  Bank  of  New  York  City,  authorized 
to  do  business  March  i6,  1864. 

In  his  report  for  November,  1864,  Comptroller 
McCulloch  stated  that  two  hundred  and  eighty-two  new 
banks  had  been  organized  during  the  year,  and  sixty- 
seven  State  banks  had  reorganized.  The  reorganization 
took  place  without  any  bad  effects, — indeed.  State  bank 
stock  appreciated  by  the  change. 

On  March  3,  1865,  Congress  enacted  that  in  forming 
National  banks  preference  should  be  given  to  State  banks 
not  having  over  $75,000  capital,  when  applying  before 
July  of  that  year,  and  a  tax  of  ten  per  cent  per  annum 
was  levied  on  all  State  bank  notes  issued  after  July  i, 
1866.  This  ha::tened  the  reorganization  materially. 
The  Act  also  provided  that  notes  should  be  issued  to  these 
banking  associations  according  to  their  capital,  as  follows: 
To  each  with  a  capital  not  exceeding  $500,000,  ninety 
per  cent;  to  each  exceeding  $500,000  and  not  above 
$1,000,000,  eighty  per  cent;  to  each  exceeding  $1,000,- 
000,  but  not  above  $3,000,000,  seventy-five  per  cent;  to 
each  exceeding  $3,000,000,  sixty  percent;  that  $150,000, - 
000  of  the  entire  amount  of  circulating  notes  authorized  to 
be  issued  should  be  apportioned  to  associations  in  the 
States,  in  the  District  of  Columbia,  and  in  the  Territories, 
according  to  representative  population,  and  the  remainder 
should  be  apportioned  by  the  Secretary  of  the  Treasury 


i66 

among  associations  formed  in  the  several  States,  Dis- 
trict of  Columbia,  and  in  the  Territories,  having  due 
regard  to  the  existing  banking  capital,  resources,  and 
business  of  such  State,  District,  or  Territory. 


« 

o 
-v..- 


Chapter  XIII. 

THE  NATIONAL  BANK  ACT,  CONTINUED. 

In  order  to  secure  a  clear  idea  of  the  history  of  the 
currency  and  bond  issues  of  the  Treasury  Department, 
all  of  which  are  so  intimately  related  to  the  development 
of  banking,  it  is  desirable  to  return  to  the  opening  of  the 
administration  of  Mr.  Fessenden  as  Secretary  of  the 
Treasury,  July  i,  1864.  He  found  the  cash  balance  in 
the  Treasury  to  be  $18,842,558;  the  unpaid  requisitions 
were  $71,814,000;  the  certificates  of  indebtedness  which 
were  outstanding  amounted  to  $161,796,000,  while  the 
daily  expenditures  exceeded  two  and  a  quarter  millions. 
To  meet  the  demands  of  such  a  condition  was  a  serious 
matter.  The  revenue  was  about  $15,000,000  for  June, 
but  that  was  but  a  third  of  the  required  sum.  He  desired 
to  avoid  issuing  more  certificates  of  indebtedness,  and  he 
was  determined  to  issue  no  more  legal-tender  notes,  could 
he  avoid  it.  He  therefore  pushed  the  sale  of  bonds 
with  good  success.  Gold  being  insufficient  to  pay  the 
interest  on  the  National  debt,  many  of  the  securities  were 
replaced  by  those  on  which  the  interest  was  payable  in 
currency,  the  interest  being  greater.  In  this  way  the 
Treasury  was  carried  along  carefully  by  Mr.  Fessenden, 
who  gave  way  to  Mr.  Hugh  McCulloch  on  March  7, 
1865.  In  March  the  new  Secretary  issued  $70,000,000 
three-years  treasury-notes,  with  interest  payable  in  cur- 
rency. In  April  the  fall  of  the  Confederacy  showed  him 
the  necessity  of  having  an  immense  amount  of  money  to 

.67 


i68 

pay  off  troops  and  send  them  home.  He  therefore  issued 
$530,000,000  in  y.T,  notes,  and  through  Jay  Cooke  real- 
ized the  money  sooner  than  had  been  the  case  with  any 
previous  loan.  That  loan  was  the  last  to  raise  means  to 
carry  on  the  war,  and  generously  had  the  people  responded 
to  the  calls  for  money  oftentimes  repeated,  the  payment  of 
which  was  only  possible  by  the  success  of  the  Govern- 
ment's endeavor  to  quell  the  rebellion. 

A  brief  review  of  the  financial  measures  taken  by  the 
Southern  Confederacy  to  carry  out  its  part  of  the  moment- 
ous struggle  should  not  be  omitted.  In  186 1*  there  were 
State  banks  scattered  throughout  the  Southern  States, 
as  in  the  North.  The  banks  in  eleven  Southern  States 
had  a  circulation  of  $74,000,000,  secured  by  reserves  of 
specie  in  the  various  banks. 

The  treasury  of  the  Confederacy  was,  of  course,  an 
empty  office  upon  the  organization  of  that  Government. 
On  February  28,  1861,  President  Davisf  was  authorized 
to  borrow  $15,000,000,  for  which  certificates  of  stock,  or 
bonds,  were  issued,  payable  in  ten  years  at  eight  per  cent 
interest.  To  secure  the  payment  of  the  interest  and  prin- 
cipal an  export  tax  of  one-eighth  of  one  per  cent  per  pound 
was  levied  on  cotton.  On  March  9,  $  i  ,000,000  in  treasury- 
notes  was  issued,  payable  in  one  year  at  3.65  per  cent. 
On  May  16  a  loan  of  $50,000,000  in  bonds  was  authorized, 
or  in  lieu  of  $20,000,000  of  these  treasury-notes  might  be 
issued.  The  notes  were  payable  in  two  years  in  specie, 
and  they  were  convertible  into  bonds  payable  in  ten  years. 
On  August  19  other  treasury-notes  were  authorized, 
amounting,  with  those  issued,  to  $100,000,000,  convertible 
into  twenty-year  bonds.  On  December  19,  $10,000,000 
in  treasury-notes  were  issued  to  pay  the  advance  of  the 

*  Report  of  Comptroller  of  Currency,  1876,  p.  92. 

t  Jeflerson  Davis'  "  Rise  and  Fall  of  the  Confederate  Government,"  vol.  i,  p.  486. 


^ 


E.D.f|UMPHR#CAiHiE 


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The  Abilene  National  'B^hiK-^^j^iiv'' "''*_-' 
l\  GENEiyVL    BANigNG  BUSINESS  TI^ANSACTED 

-Parti cul;\r  ATTENTION  p/^id  to  collections 
ejnd  r^rqitt^cl  for  ci|  |oW^s|   P^ites  n^; 
Investments  made  for  eastern  parties 

^(9rr^6por\clg^r\(ig  ii\\/il"^d.  (cM^^RyROfiDEiiT^ 

^  ^flF\STlsl/\TIONAL     t^EWYoH}^ 

.^A^Ri^E^^-H?^  Fff\5T  IsIaj'l.    Chicago         "f^L.pARKER 

L\TE  pO^^W-^FV  ^    -i^/\MEfMCAN  rJAfL.  (j^pit^ust 

f^EStOENT   UrJiON    |nVeSTMENT  (6.  ^ 


(^hl.^ 


Hila,nd8outhWorth 

^J0t^T6/\SE     LOANS 


lODGE 

|atf    '^stm  aster' 

p.  RoBi^E    Ex  Go\/  Maine 
E.D.HUNiPHF\EY    0\SHIEf\ 

FOf^MERUY    WITH    THE  >\B ELI NE  BANK. 


National  Bank  of  the  Republic, 
313  CHESTNUT  STREET. 

PHILADELPHIA. 

CapiUI,  $500,000.  Surplua,  $300,000.*.° 

WILLIAM  H.  RHAWN,  Prest. 

JOSEPH  P.  MUMFORD,  Cashier. 


169 


banks,  and  on  December  24  $80,000,000  more  were 
authorized.  On  April  12,  1862,  treasury-notes,  certifi- 
cates of  stock,  and  bonds  were  authorized  to  be  issued  to 
the  amount  of  $215,000,000.  On  April  17,  $5,000,000 
in  treasury  one  and  two  dollar  notes  were  authorized.  On 
September  19,  1862,  $3,500,000  in  bonds  was  authorized 
to  pay  for  six  war  vessels.  On  September  23,  $5,000,- 
000  in  five-dollar  treasury-notes  and  $50,000,000  in  bonds 
were  authorized.  On  March  23,  1863,  an  effort  was 
made  to  take  some  of  the  issues  of  treasury-notes  out  of 
circulation  by  funding  them,  and  the  monthly  issue  of 
$50,000,000  in  fundable  treasury-notes  without  interest, 
and  the  issue  of  $5,000,000  in  denominations  of  two  dol- 
lars, one  dollar  and  fifty  cents,  were  authorized.  The 
issue  of  $100,000,000  in  six  per  cent  coupon  bonds  was 
authorized  on  that  day,  the  interest  to  be  paid  in  currency 
or  cotton  certificates.  On  February  17,1864,  an  attempt 
to  reduce  the  redundant  currency  to  the  needs  of  busi- 
ness was  made,  and  a  new  issue  of  treasury-notes  author- 
ized until  April  i.  As  in  the  North,  the  inflation  of  the 
currency  had  resulted  in  wild  speculation,  enormous 
prices  and  appreciated  specie.  An  issue  of  $500,000,000 
in  six  per  cent  bonds  was  also  authorized,  for  the  pay- 
ment of  the  interest  on  which  the  specie  export  taxes 
were  pledged.  To  pay  the  interest  on  its  bonds,  an 
internal  war  tax  had  been  levied  in  1861  by  the  Provis- 
ional Government;  but  in  1862  opposition  to  internal  tax- 
ation had  caused  it  to  be  a  partial  failure. 

The  operation  of  the  funding  law  of  February  17, 
1864,  was  successful  in  reducing  the  treasury-notes  in  cir- 
culation. It  was  estimated  that  $300,000,000  had  been 
funded;  but  $200,000,000  in  new  notes  had  been  issued 
while   this   was  going  on,  so  the  redundancy  of  the  cur- 


170 

rency  was  but  slightly  affected,  and  this,  as  well  as  the 
decreasing  chances  of  the  ultimate  redemption  of  the 
notes,  caused  them  to  be  much  depreciated.  A  foreign 
loan  of  ;^2, 200,000,  in  bonds  convertible  into  cotton,  had 
been  realized  in  London  and  Paris  in  1863.  On  October 
I,  1864,  the  home  debt  of  the  Confederacy  was  estimated 
at  $1,126,381,095. 

At  the  close  of  the  war  the  State  banks  in  the  South 
which  had  been  enabled  to  preserve  their  specie  capital 
unimpaired  were  in  shape  to  redeem  their  issues  of  notes. 
Those  which  had  invested  in  Confederate  securities 
were  forced  to  close  up  business.  Thus  we  find  that  by 
reason  of  the  insufficient  banking  privileges  in  the  South, 
and  the  taxation  of  State  bank  notes  in  the  North,  the 
growth  of  National  banks  was  necessarily  large. 

On  March  9,  1865,  Mr.  McCulloch  was  made  Secre- 
tary of  the  Treasury,  and  Freeman  Clarke  became  Comp- 
troller. In  the  latter's  report  for  that  year  he  states  that 
nine  hundred  and  twenty-two  of  the  one  thousand  six 
hundred  National  banks  then  organized  were  converted 
State  banks.  One  of  the  first  effects  of  the  rapid  reor- 
ganization of  State  banks  was  a  diminution  of  the  currency 
in  circulation,  as  all  the  State  banks  were  obliged  to 
reduce  their  circulation  below  the  amount  prescribed  by 
law  before  any  National  circulation  would  be  given  them. 
The  amount  of  National  bank-notes  in  circulation  October 
I,  1865,  was  $171,321,903;  of  State  bank  notes,  $78,867,- 
575,  and  of  legal  tender  and  fractional  currency,  $704,- 
584,658. 

The  operation  of  that  portion  of  the  National  bank 
Act  governing  the  distribution  of  circulation  worked 
unjustly  to  the  West  and  South,  and  the  Comptroller 
desired  that  the  deficiency  of  circulation  in  those  sections 


171 

should  be  remedied,    particularly   with  reference   to  the 
prostrate  South. 

A  plan  was  adopted*  by  which  the  sum  of  $54,000,- 
000  was  to  be  furnished  the  banking  associations  (existing 
and  to  be  organized)  in  the  States  and  Territories  having 
less  than  their  proportion  under  the  apportionment  con- 
templated in  the  Act  of  March  3,  1865.  The  applications 
were  to  be  made  within  a  year,  and  at  the  close  of  that 
time  the  amount  unapplied  for  should  be  awarded  to 
applicants  from  other  localities  where  the  deficiency  was 
greatest.  When  the  amount  should  have  been  distributed, 
$25,000,000  was  to  be  withdrawn  from  the  banks  having 
an  excess,  and  distributed  to  banks  with  deficient  circula- 
tion. 

The  issue  of  $54,000,000  in  bank  circulation  was 
counterbalanced  by  the  cancellation  of  a  similar  amount  of 
three  per  cent  certificates  issued  in  1867  and  1868.  Upon 
the  issue  of  the  bank-note  circulation  as  provided,  the 
Comptroller  found  the  provision  for  taking  away  $25,000,- 
000  from  banks  having  an  excess  of  circulation  impossible 
to  execute;  so  he  recommended  that  the  law  be  repealed 
and  $5,000,000  additional  circulation  be  yearly  issued  for 
five  years.  The  bill  containing  that  provision  was  vetoed 
by  President  Grant.  A  bill  was  then  passed  by  Congress 
on  June  20,  1874,  which  provided  that  $55,000,000  should 
be  withdrawn  and  redistributed.  The  same  law  also  pro- 
vided for  the  voluntary  surrender  of  circulating  notes  by 
any  bank,  by  depositing  not  less  than  $9,000  with  the 
Treasurer  and  withdrawing  the  bonds  that  secured  them. 
This  law  caused  a  reduction  of  $30,869,655  before  the 
close  of  1877. t 

*  Act  of  July  12,  1870, 

t  Comptroller's  Report  for  1S78. 


172 

By  an  Act*  of  1875  the  restriction  on  the  issue  of 
bank-notes  was  removed,  and  the  Secretary  of  the  Treas- 
ury was  directed  to  retire  legal-tender  notes  to  the  amount 
of  eighty  per  cent  of  the  National  bank  notes  issued  there- 
after, until  the  amount  of  legal  tender  outstanding  should 
be  reduced  to  $300,000,000.  Under  the  action  of  this  law 
the  Secretary  had  retired  $35,318,984  in  legal -tender 
notes  when  Congress  passed  a  resolutionf  directing  him 
not  to  retire  any  more  legal  tenders,  but  to  reissue  them 
and  keep  them  in  circulation.  At  that  time  the  legal- 
tender  notes  in  circulation  amounted  to  $346,681,016. 

On  October  i,  1881,  two  thousand  one  hundred  and 
forty-eight  National  banks  were  in  operation.  The  char- 
ters of  many  of  them  were  to  expire  in  1882  and  1883. 
That  of  the  first  bank  chartered  expired  January  i,  1882, 
and  from  that  day  to  February  25,  1883,  the  charters  of 
three  hundred  and  ninety-three  would  have  expired  had 
not  Congress  made  a  law  under  the  provisions  of  which 
the  charters  could  be  renewed.  There  was  a  very  long 
debate  on  the  subject,  as  at  that  time  there  seemed  to  be 
a  widespread  hostility  to  the  issue  of  notes  by  banks 
without  the  payment  to  the  Government  for  the  privilege, 
but  the  law  passed  as  stated.  It  is  true  that  banks  desir- 
ing to  continue  business  in  that  form  could  have  organ- 
ized anew,  but  that  would  have  required  much  trouble 
and  annoyance,  and  the  banks  would  have  been  much 
weakened.  The  law  provided  for  a  surplus  formed  by 
carrying  ten  per  cent  of  the  net  profits  of  the  bank  for 
each  preceding  half-year  to  a  surplus  fund  until  it  should 
equal  twenty  per  cent  of  the  capital  stock.  Thio  surplus 
would  necessarily  have  been  distributed  among  the  stock- 
holders on  the  reorganization  of  the  bank,  and  to  avoid 

*  The  Resumption  Act. 
t  May  31,  1878. 


^73 

this  weakening  action  was  one  of  the  inducements  which 
led  Congress  to  provide  for  extending  the  life  of  National 
banks  whose  charters  were  about  to  expire. 


Chapter  XIV. 
THE    RESUMPTION    OF    SPECIE    PAYMENTS. 

We  have  followed  the  history  of  the  issue  of  legal- 
tender  notes  and  bonds  by  the  Government  during  the 
Civil  War,  of  the  organization  of  the  National  banking 
system  during  that  period  of  financial  disturbance,  and  its 
operation  up  to  the  time  of  the  renewal  of  the  charters 
of  National  banks  in  1882.  Let  us  now  revert  to  the 
efforts  to  resume  specie  payments,  —  an  epoch  of  much 
importance  in  our  financial  history. 

The  banks  and  the  Government  suspended  specie 
payments  on  Monday,  December  30,  1861.  The  general 
impression  was  that  resumption  would  be  postponed  but 
a  short  time  after  the  close  of  the  war;  but  no  one  had  any 
conception  of  the  enormous  inflation  which  was  to  take 
place  in  the  currency  circulation  of  the  country,  or  at 
what  cost  resumption  would  finally  be  secured.  Had  the 
financial  advisers  of  the  Government  had  any  such  con- 
ception it  is  doubtful  if  they  would  have  issued  so  many 
millions  of  legal-tender  notes  as  they  did,  even  though 
constrained  as  they  were  by  necessity  of  the  sternest 
sort. 

Mr.  McCulloch  was  Secretary  of  the  Treasury  when 
the  war  closed,  and  he  was  strongly  in  favor  of  resump- 
tion of  specie  payments,  "a  departure  from  which, 
although  for  a  time  being  a  necessity,  is  no  less  damaging 
and  demoralizing  to  the  people  than  expensive  to  the 
Government. " 

•74 


175 

The  Secretary  was  endorsed  by  President  Lincoln, 
by  the  press,  and  by  various  commercial  organizations; 
but  the  measures  to  be  taken  were  necessarily  careful 
ones. 

In  1865  gold  reached  the  price  of  233^.  The  cur- 
rency had  been  inflated  from  $200,000,000  in  i860  to 
$700,000,000,  and  the  result  was  wild  speculation,  unwise  J 

obligations,  and  high  prices.  Resumption  could  only  be 
brought  about  by  bringing  notes  and  gold  to  an  equal 
value,  and  this  could  be  done  only  by  reducing  the 
amount  of  notes  in  circulation.  This  reduction  meant 
a  fall  in  prices,  and  a  general  derangement  of  values. 

Secretary    McCulloch    recommended    Congress    to 
enact    that    interest-bearing    legal-tender    notes    should 
cease  to  be  legal  tender  after  their  maturity, —  believing 
that  this  would  aid  the  Government's  efforts  to  retire  them. 
He  also  asked  authority  to  sell  six  per  cent  bonds  in  order 
to    retire  the  compound-interest  and  the  United   States 
notes.      On  February   i,  1866,   a  bill   authorizing  him  to 
receive  treasury-notes  or  other  obligations   in   exchange 
for  bonds,  was  reported  by  the  Ways   and  Means  Com- 
mittee of  the  House,  and  occasioned  a  long  debate,  dur- 
ing which  an  amendment  was  made  withdrawing  authority 
to  sell  the  bonds  abroad  payable  in  the  currency  of  foreign 
countries.     The  bill  was  recommitted,  and  upon  its  being 
reported  a  second  time  contained  a  proviso  that  "of  United 
States  notes  not  more  than  ten  millions  may  be  retired 
and  cancelled  within  six  months  from  the  passage  of  this 
act,  and  thereafter  not  more  than  four  millions  in  any  one 
month."     As  amended  the  bill  passed   the    House  and 
Senate.* 

The  banks  held  large  amounts  of  the  interest-bearing 
notes  as  lawful  reserve,  and  as  bank  circulation  increased 

*  April  12,  1S66. 


\ 


176 

legal-tender  notes  were  also  held  as  reserve,  which 
effectually  kept  them  out  of  circulation.  The  banks  also 
held  large  numbers  of  compound-interest  notes  of  early 
maturity,  to  meet  the  payment  of  which  Congress  on 
March  2,  1867,  authorized  the  issue  of  $50,000,000  in 
three  per  cent  certificates,  payable  on  demand.  The 
legal-tender  notes  were  reduced  somewhat  irregularly 
until  the  meeting  of  Congress  in  December,  1868,  at 
which  time  the  money  market  was  stringent  and  the  oppo- 
sition to  further  contraction  was  very  strong.  In  Feb- 
ruary, 1868,  Congress  suspended  the  Secretary's  author- 
ity to  retire  legal-tender  notes,  the  currency  having  been 
contracted  $142,439,958. 

In  October,  1870,  Secretary  Boutwell,  who  suc- 
ceeded Mr.  McCulloch  on  March  11,  1869,  issued  $1,500,- 
000,  in  legal-tender  notes  to  relieve  a  Wall  street  specula- 
tive stringency,  for  which  he  was  generally  criticised,  and 


qyARTER-EAGLK  1870. 


in  the  next  year  he  issued  $4,637,256  more;  but,  being 
unable  to  withstand  the  very  pointed  disapproval  which 
was  manifested,  he  speedily  retired  most  of  it,  and  his 
successor,  William  A.  Richardson,  retired  the  remainder. 
In  1873  a  panic  occurred  which  carried  down  large 
numbers  of  business  houses,  and  Secretary  Richardson 
issued  legal-tender  notes  in  payment  of  bonds  purchased, 
and  the  House  passed  a  bill  on  March  23,  1874,  fixing 
the  maximum  amount  of  legal-tender  notes  which  could 
be  issued  at  $400,000,000.     A  similar  bill  was  amended 


"TTf^e  [i^ghtpJing 

'         y^NoyORNADO 

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PoPULAF^|N(ufevN^E 
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CHICAGO,      ILLINOIS. 


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177 

in  the  Senate  by  authorizing  an  additional  issue  of  $46,- 
000,000  of  bank  notes  for  distribution  to  the  South  and 
West.  The  House  passed  this  bill  April  14,  1874,  and 
President  Grant  vetoed  it  April  22,  and  thus  the  attempt 
to  expand  the  currency  again  was  defeated. 

In  the  House  the  free  banking  bill  was  then  passed, 
and  the  Senate  amended  it  by  fixing  the  maximum  amount 
of  legal  tender  at  $382,000,000,  and  withdrawing  $55,- 
000,000  in  currency  from  the  Eastern  banks  and  assign- 
ing it  to  the  banks  of  the  South  and  West  and  Territories. 


GOLD  DOLLAR. 

Then  came  "An  Act  to  provide  for  the  resumption  of 
specie  payments,"  which  became  a  law  January  14,  1875. 
This  provided  for  the  redemption  of  fractional  currency 
by  the  coinage  and  issue  of  silver  coins  of  ten,  twenty- 
five  and  fifty  cents  denominations.  The  coinage  of  silver 
was  provided  for  and  seigniorage  abolished.  The  restric- 
tion on  the  amount  of  bank  notes  was  removed.  The 
Secretary  was  authorized  to  retire  $80  in  legal-tender 
notes  for  each  $100  issued  by  the  banks  until  the  legal 
tender  in  circulation  should  be  reduced  to  $300,000,000. 
The  first  day  of  January,  1879,  was  fixed  as  the  time  when 
specie  payments  should  be  resumed. 

In  December,  1876,  Secretary  Morrill  reported  that 
silver  subsidiary  coins  had  been  issued  to  the  amount  of 
$22,000,000,  and  $(3,000,000  of  the  fractional  currency 
had  been  redeemed.  The  work  of  retiring  legal-tender 
notes  had  progressed  in  proportion  to  the  issue  of  National 
bank  notes, 

<12) 


178 

On  March  9,  1877,  Senator  John  Sherman  became 
Secretary  of  the  Treasury.  He  was  the  proposer  of  the 
plan  of  resumption,  and  it  was  quite  fitting  that  he  should 
have  a  share  in  its  successful  operation.  On  May  31, 
1878,  he  was  directed  by  Congress  to  retire  no  more 
legal-tender  notes  and  to  keep  the  amount  then  outstand- 
i"&.  $346,681,016,  in  circulation,  the  reduction  of  the  cur- 
rency since  January   14,    1875,  having  been  $35,318,984. 

By  selling  bonds  and  by  hoarding  the  surplus  revenue, 
Secretary  Sherman  had  on  hand  $133,508,804.50  in  coin 
when  resumption  day  came  around.  By  an  arrangement 
made  with  the  banks,  and  by  making  the  assistant  treasurer 
of  the  United  States  a  member  of  the  New  York  clearing 
house,  resumption  was  made  much  easier  than  it  would 
have  been  without  the  co-operation  of  the  banks. 

They  agreed  on  November  12,  1878,  that  checks 
presented  to  the  assistant  treasurer  by  any  clearincr  house 
bank  should  be  payable  in  United  States  notes;  that  gold 
coin  should  not  be  received  as  special  deposits,  but  as 
lawful  money  only;  that  special  exchanges  of  gold  checks 
at  the  clearing  house  should  be  abolished;  clearing  house 
balances  to  be  paid  either  in  gold  or  United  States  legal 
tender,  and  gold  special  accounts  to  be  discontinued.* 

From  the  publication  of  a  statement  of  this  action 
resumption  was  sure  and  certain.  On  December  17 
paper  touched  par  for  the  first  time  in  this  country  for 
sixteen  years.f  For  a  month  previous  to  the  day  fixed 
by  law  for  resumption  to  begin,  it  was  practically  accom- 
plished, and  on  January  i,  1879,  the  ghost  which  had 
haunted  the  finance  ministers  of  the  country  for  seventeen 
years  was  laid,  and  resumption  was  an  accomplished  fact. 

»  New  York  TribuHi,  November  13    1S7S. 
t  New  York  Timit,  December  iS.  1S78. 


Chapter  XV. 
BANKING  SINCE  1882. 


The  Act*  permitting  the  extension  of  the  corporate 
existence  of  National  banks  for  twenty  years  provided  for 
an  examination  of  the  applying  bank,  and,  if  a  satisfactory 
condition  was  found,  the  Comptroller  could  issue  a  certifi- 
cate for  the  proposed  extension.  It  also  provided  for 
the  withdrawal  of  share- holders  who  objected  to  the 
extension,  and  that  stockholders  in  the  expiring  associa- 
tion should  have  the  preference  in  the  allotment  of  shares 
in  the  new  association.  The  circulating  notes  of  the 
association  issued  to  it  previous  to  the  extension  were  to 


SIERRA    LEONE   SILVER  DOLLAR,   1791. 

be  retired  by  redemption  at  the  Treasury,  and  new  notes 
issued  to  the  extending  bank.  Banks  not  extending 
were  obliged  to  deposit  lawful  money  for  the  retirement  of 
their  notes.     The  action  of  this  law  will  be  noted  later. 

On  January  i,  1884,  a  receiver  was  appointed  for  the 
New  York    and  New  England   railroad. 


This  was  fol- 


*  Act  of  July  12,  1SS2. 


'79 


i8o 

lowed  by  the  troubles  of  the  Oreg^on  and  Trans-conti- 
nental Company  and  the  failure  of  the  North  River  Con- 
struction Company.  Other  failures  occurred  in  February, 
March  and  April,  and  the  general  financial  uneasiness 
developed  into  a  regular  panic  by  the  failure  of  the  Marine 
National  Bank  of  New  York,  the  firm  of  Grant  and  Ward 
soon  following,  and  the  defalcation  in  the  Second  National 
Bank  of  New  York  of  over  three  million  dollars.  The 
crisis  culminated  May  14  with  the  failure  of  the  Metropoli- 
tan National  Bank  of  New  York,  and  others  more  or  less 
important  followed  in  May  and  June.  On  the  afternoon 
of  May  14  the  New  York  Clearing  House  decided  to  set- 
tle balances  by   certificates  of   deposit    based    on   bills 


SKILLING  PIECES  OF  DANISH  WEST  INDIES. 

receivable  and  securities,  approved  by  a  committee. 
Loan  certificates  were  issued  to  the  Metropolitan  Bank 
based  on  its  securities,  and  it  resumed  business  the  next 
day.  The  panic  was  thus  stayed  and  credit  gradually 
revived. 

The  original  National  Bank  Act  of  February  25,  1863, 
contained  a  provision  that  every  National  bank  should  at 
all  times  have  on  hand  in  lawful  money  an  amount  equal 
to  at  least  twenty-five  per  cent  of  the  aggregate  amount 
of  its  notes  in  circulation  and  deposits.  The  Act  of  June 
3,  1864,  which  is  usually  called  the  National  Bank  Act, 
provided  that  every  National  bank  in  seventeen  cities 
mentioned  should  have  a  reserve  of  twenty-five  per  cent 
of  its  circulation  and  deposits,  and  every  bank  in  other 


i8i 

cities  should  have  a  reserve  of  fifteen  per  cent  of  its  cir- 
culation and  deposits. 

In  the  Act  of  June  20,  1874,  this  provision  was 
changed  and  the  banks  were  thereafter  relieved  from 
keeping  on  hand  any  amount  of  money  whatever  by 
reason  of  the  amount  of  their  respective  circulations;  but 
the  moneys  required  by  that  section  to  be  kept  at  all 
times  on  hand  were  to  be  determined  by  the  amount  of 
deposits.  This  Act  also  required  every  National  bank  to 
keep  an  amount  of  lawful  money  equal  to  five  per  cent  of 
its  circulation  on  deposit  in  the  United  States  Treasury 


COIN  OF    HAYTI. 


as  a  fund  for  the  redemption  of  its  circulation,  this  fund  to 
be  a  part  of  its  lawful  reserve. 

On  March  3,  1887,  an  Act  was  passed  which  provided 
that  whenever  three-fourths  of  the  National  banks  in  any 
city  of  the  United  States  with  a  population  of  fifty  thou- 
sand people  should  make  application  to  the  Comptroller, 
asking  that  their  city  should  be  added  to  those  in  which 
banks  are  required  to  keep  twenty-five  per  cent  of  their 
deposits  on  hand,  the  Comptroller  should  have  power  to 
grant  such  request;  also  that  when  three-fourths  of  the 
National  banks  in  a  city  of  two  hundred  thousand  people 
make  application  to  be  a  central  reserve  city,  like  the 
City  of  New  York,  in  which  one-half  of  the  lawful  money 
reserve  of  the  National  banks  located  in  other  reserve 
cities  may  be  deposited,  the  Comptroller  has  the  authority, 
subject  to  the  approval  of  the  Secretary  of  the  Treasury, 


l82 

to  grant  such  request,  and  all  National  banks  shall  keep 
twenty-five  per  cent  of  their  deposits  on  hand. 

"Originally,"  says  the  Comptroller,*  "all  associations, 
wherever  located,  were  required  to  keep,  either  in  cash 
or  subject  to  sight  draft,  funds  in  hand  equal  to  at  least 
twenty-five  per  cent  of  all  obligations  payable  on  demand. 
Subsequently  a  distinction  was  made  between  associations 
in  certain-named  cities  and  those  located  elsewhere,  and 
the  latter  were  required  to  keep  only  fifteen  per  cent 
reserve  upon  the  aggregate  of  deposits  and  circulation. 
The  amount  that  might  be  kept  with  redemption  agents 
was  limited  to  three-fifths  of  fifteen  per  cent  for  associa- 
tions generally,  and  to  one-half  of  twenty-five  per  cent 
for  those  in  reserve  cities,  and  in  the  latter  case  New 
York  was  the  only  place  in  which  the  banks  in  other 
redemption  cities  might  have  redemption  agents. 

"At  a  later  period  the  fund  to  be  kept  for  the  redemp- 
tion of  circulation  was  separated  from  the  remaining 
reserve  to  be  held  against  deposits;  it  was  fixed  at  five 
per  cent  of  the  outstanding  circulation,  and  was  required 
to  be  kept  on  deposit  with  the  Treasurer  of  the  United 
States.  Besides  being  specifically  devoted  to  the  redemp- 
tion of  circulation,  this  fund  is  also  authorized  to  be 
counted  as  part  of  the  reserve  against  deposits. 

"Simultaneously  with  this  provision  as  to  the  amount 
and  location  of  the  redemption  fund  the  banks  were 
relieved  of  the  obligation  to  keep  a  reserve  on  circulation, 
but  were  required  to  keep  in  reserve  funds  to  the  amounts 
represented  by  fifteen  per  cent  and  twenty-five  per  cent 
respectively  upon  their  deposit. 

"The  new  regulation  as  to  redemption  of  circulation 
dispensed  with  redemption  agents,  but  the  Act  of  June 
20,  1874,  re-enacted  the  provision  as  to  the  proportion  of 

*  Comptroller's  report  for  1887. 


i83 

reserve  that  might  consist  of  balances  due  from  approved 
associations  in  the  cities  formerly  named  as  cities  of 
redemption.  These  cities  thus  came  to  be  called  'reserve 
cities,'  "  and  in  1887  the  term  was  formally  incorporated 
in  the  law. 

In  the  twenty-fifth  annual  report  of  the  Comptroller 
of  the  Currency,  December  i,  1887,  there  is  given  the  fol- 
lowing statistical  information  which  shows  the  condition 
of  the  National  bank  system  of  the  United  States  on 
October  31,  1887: 


i 


Number  of  National  Banks  Organized,  in  Liquidation,  and  in  Operation,  with  their  Capi- 
tal, Bonds  on  Deposit,  and  Circulation  Issued,  Redeemed,  and  Outstanding  on  October 
3',  1887: 


Banks. 

Capital 

stock  paid 

in. 

U.  S.  Bonds 
oa  Deposit. 

Circulation. 

States  and  Ter- 
ritories. 

Organ- 
ized, 

In 

liquida- 
lion. 

In 
Opera- 
tion. 

Issued. 

Redeemed. 

Outstand- 
ing.* 

Maine 

New  Hampshire 

Vermont 

Massachusetts.. 
Rhode  Island. .. 
Connecticut 

83 

1 

10 
5 

■4 

■5 
3 

'3 

73 
49 
49 

1; 
83 

$10,335,000 

6,205,000 

7,566,000 

95,940,500 

20,340,050 

24.644.370 

»5.540,950 

31668,400 
34,557,800 

4,596,800 
■0,245,750 

62,717,000 

$34,456,960 
21,878,125 
30,271,420 

292,532,485 
6', 579,095 
81,079,940 

$26,726,751 
17,185,657 

25,404,487 

240,305,630 

5','8',338 

66,652,513 

4,866,933 
52,226,855 

'0,397,757 

15,427,427 

Eastern  States.. 

626 

60 

5« 

165,030,920 

521,798,025 

427,459,376 

94.338.649 

New  York 

New  Jersey. 

Pennsylvania... 

Delaware 

Maryland 

Dist.  Columbia . 

42s 
92 

354 
■7 
5' 
>3 

101 
11 
5' 

3 

5 

324 

Si 

303 

S6.339.7'» 
13,025,120 
66.607,990 

2,083,985 
14,509,960 

1 ,827,000 

30,387,200 
7,013,100 

19,098,500 
1,682,700 
2,662,450 
1,010,000 

264,3'-7,365 
48,18^,500 

184819,465 

6,358.825 

36,598,780 

4,903,900 

226,185,206 
40059,603 

148,236,096 
4,884,648 
29,974,776 
4,102,800 

38,172,159 
8,122,897 
36.583.369 

'.474. '77 

6,624,004 

801,100 

Middle  States. . . 

952 

171 

78, 

'S4,393.8>5 

61,853,950 

545,220,835 

453.443. '29 

9'.777.7o6 

Virginia 

West  Virginia.. 
North  Carolina- 
South  Carolina.. 

Georgia 

Florida  

Alabama 

Mississippi 

I^uisiana 

Texas    

39 
27 
21 
■7 
37 
12 

23 

"4 
"7 
97 
10 
81 
56 

14 

7 
3 
2 

6 

2 

3 

2 

t 
3 
■3 

16 

25 
20 

iS 

>s 

21 
10 
20 
12 
13 
9" 

40 

3,796,300 
2,061,000 
2,426,000 
1,749,200 

3,070.5'0 
550,000 
3,484,000 
1,055,000 
3,425,000 
10,044,000 
950,000 
13,200,400 
7.485,000 

■.55' .350 

628,900 

863,500 

692,250 

858,500 

2,7,500 

851,000 

320,000 

1,418,800 

2,417,800 

422,500 

3,925,000 

■.594,250 

11,605,630 
7,140480 
6,2 18,760 
5,330,255 
7,763,670 
319,450 
4,8o3,oSo 
443,730 

'0.303,9'0 
5,603,980 
1,199,120 

33, '32,245 
10,618,300 

9,602,886 

5,922,688 

S.'6i,S9o 

4,5 '5  772 

6.324.053 

'60,387 

3.654  647 

^  183.899 

8,171,649 

3.255.9S6 

S29.437 

25,9 1. -,,940 

8,567,007 

2,002,744 
■  ,217,792 
■.057. '70 

814,483 
■.439.6 '7 

■59.063 
'.'48,4.33 

259.831 
2,132,261 
',347,994 

Arkansas  

Kentucky  

Tennessee 

36^.^ 
7.213.305 
2.051,293 

Southern  States. 

441 

Si 

360 

53,296,420 

'5.79^,350 

104,482,610 

82,268,941 

22,313,669 

Missouri 

i5» 
243 
149 

176 

,t 
no 

11 
59 
65 
4' 
32 

% 
21 
6 

52 
216 

93 
■78 

IDS 

57 
129 

5!> 
141 
104 

11,826.000 
41,058,120 
■',704.500 
29,286,500 
14,546,050 

5,210,000 
■0,132,300 
■3.75?.7oo 
10,932,520 

8,4^5.550 

1,412,050 
'5, 2 '9.950 
5,016,800 
5,848,500 
3,  "4.750 
1, 680,500 
2,856,000 
2,11 2,950 
2,848,000 
1,945,000 

■6,395.665 
96,277,840 
49,870,755 
49,059, 165 
26,919,810 
12,164,100 
20,965,710 
",372,770 
6,799,070 
5,360,730 

295,185,615 

13,803,212 
75.4^^."2 
42,109,198 
41,344.028 
22,276,128 
9,875,260 
16,993,900 
9, '57,334 
4,085,567 
3  330,7 '6 

2o,'866,'728 

Indiana  

Illinois 

Michigan  

Wisconsin 

7,76',S57 
7.7'5,'37 
4,643,682 
2,288,840 
3,971,810 

Minnesota 

Kansas. 

Nebraska 

2,215,436 
2,7^3,503 
2,030,014 

Western  States. 

■.532 

3^ 

I.  "34 

156,835240 

42,054,500 

238,386,455 

56799,160 

Nevada 

Oregon  

Colorado 

Utah 

Idaho 

3 

»3 
40 
10 
6 
22 

8 
10 
69 
23 

3^6 

...I 
5 

7 
3 
3 
3 

2 
23 

I 

'I 

6t 
20 

1 
33 

150,000 
1,800,000 
2,755.400 

850,000 

350,000 
2,000,000 
1,075,000 

850,000 
3,775.000 
1,475,000 

100,000 
6,875,000 

36,500 
644,800 
926,500 
390,000 

92,800 
500,600 
273,750 
270,000 
992,500 
317,500 

25,000 
1,911,250 

200,720 

1,426,12c 
4,114260 
1,465,910 

394.670 
■,583.790 

454,38-1 
■  ,384,530 
1,914.190 
■,013.340 
88,790 
3.^5*J.690 

■83.693 

755.630 

3,045.846 

1,064,885 

1,112,186 
283,755 

1,023,607 

948,411 

447,622 

5  ■.2,^0 

1,460,965 

17,027 

670,490 

1,068.414 

401,025 

88,255 

Montana 

Wyoming    ...    . 
New  Mexico,... 

Dakota 

Washington 

Arizona 

California 

471,604 
170,625 
360,923 
965.779 
S6S,7'8 
37.560 
1,728,725 

Pacific  States  & 
Territories 

254 

35 

219 

22,055,400 

6,411,200 

■7.230,390 

10,684,245 

6,546,  ^45 

Add    for    muti- 

■25.945 

Total    Currency 

>,4S3.9'7,475 
3.465,240 

1,212,242,146 
3,225,3" 

Add  gold  banks 

United  States... 

3.S0S 

+745 

t3,orJo 

581,611,795 

i88,S2S,ooo 

',487.382,715 

1.215,467,457 

272,041,203 

♦  Including  $102,826,136  for  which  lawful  inotiey  h:is  been  deposited  with  the  Treasurer  of  the  United 
States  to  retire  an  equal  amount  of  circulation  which  has  not  been  presented  for  redemption, 
t  One  bank  restored  to  solvency  and  resumi:d  business,  making  total  going  banks  3,061. 

1S4 


i85 

As  the  laws  now  stand*  a  National  banking  associa- 
tion may  be  formed  by  any  number  (not  less  than  five)  of 
natural  persons,  and  any  banking  corporation  having  a 
State  or  Territorial  charter  may  be  converted  into  a 
National  banking  association.  Every  person  applying  for 
information  as  to  the  formation  of  a  National  bank,  or  the 
conversion  of  a  State  bank,  is  supplied  with  a  copy  of 
the  National  bank  laws  and  a  book  of  instructions  as  to 
the  practical  steps  to  be  taken  in  effecting  either  of  these 
purposes.  He  is  also  requested  to  cause  a  formal  notice 
to  be  filed,  setting  forth  the  name  of  the  place  at  which 
the  bank  is  to  be  located,  the  title  selected,  and  the  names 
of  at  least  five  among  those  who  intend  to  subscribe  for 
the  capital  stock.  After  notice  has  been  filed  the  person 
or  persons  acting  in  the  matter  are  furnished  with  blank 


TWELVE-SOU  PIECE  OF  THE  WINDWARD  ISLES. 

forms  to  be  used  in  effecting  an  organization,  and  the  title 
which  they  have  selected,  if  it  is  approved,  is  reserved 
for  them  for  a  reasonable  period.  The  forms  sent  include 
articles  of  association,  organization  certificate,  certificate 
upon  which  officers  and  directors  are  to  set  forth  the 
facts  which  it  is  necessary  for  the  Comptroller  to  know 
before  authorizing  the  bank  to  begin  business,  oaths  of 
directors,  and  a  bank  order  for  circulating  notes.  As  soon 
as  these  papers  are  returned,  duly  executed,  and  all  the 
requirements  of  the  law  have  been  complied  with  by  the 
corporators,  the  Comptroller's  certificate  to  that  effect  is 
issued.     The  requirements  of  law  for  the  formation  of 

»  Comptroller's  report  for  1887,  P*  55* 


i86 


uew  banks  are  simple  and  reasonable,  the  only  one 
appearing  onerous  being  that  which  requires  the  bank  to 
deposit  in  the  Treasury  certain  amounts  of  United  States 
registered  bonds  bearing  interest. 

Under  the  Act  of  February  25,  1863,  National  bank- 
ing associations  were  required  to  deposit  with  the  Treas- 
urer United  States  bonds  to  the  amount  of  one-third  their 
paid-in  capital.  In  1864  this  provision  was  amended  by 
fixing  $30,000  as  the  minimum  amount  of  bonds  for  any 
bank. 

The  Act  of  June  20,  1874,  permitted  associations  to 
withdraw  any  bonds  they  might  have  on  deposit  in  excess 
of  $50,000.  Obviously  this  affected  only  banks  of  which 
the  capital  exceeded  $150,000. 

The  Act  of  July  12,  1882,  specified  that  banks  of 
which  the  capital    does  not  exceed  $150,000  should  be 


RKAI.  OF  CUKACAO. 

required  to  keep  on  deposit  bonds  to  the  amount  of  one- 
fourth  of  their  capital. 

By  a  special  provision  of  law  banks  and  banking  cor- 
porations having  State  charters  may  be  converted  into 
National  banks  upon  satisfying  the  Comptroller  of  the 
Currency  that  they  are  in  sound  financial  condition,  and 
upon  complying  with  such  of  the  general  requirements  of 
the  law  as  are  applicable  to  them.* 

The  following  table,  taken  from  "The  Banker's  Alma- 
nac and  Register"  for  January,  1888,  furnishes  a  summary 
of  the  banks  and  bankers  in  the  United  States: 

♦  The  number  of  state  banks  which  have  been  converted  into  National  banks  under  the  jjro- 
visions  mentioned  is  586.  Of  these  sixty-nine  have  gone  into  vohint;irv  liquidation,  and  nineteen 
have  gone  into  insolvency,  the  year  tS6^  carrying  fourteen  such  banks  under. 


BANKS  AND  BANKERS  OF 

THE 

UNITED  STATES. 

National. 

state. 

Sav'gs* 

Private.t 

Totals. 

Alabama, 

20 

9 

49 

78 

Arizona, 

I 

5 

4 

TO 

Arkansas, 

7 

13 

20 

40 

California,            .... 

37 

lOI 

27 

52 

217 

Colorado, 

31 

20 

69 

120 

Connecticut,        -         -          .         . 

83 

20 

86 

19 

208 

Dakota,           -         -         .         .         . 

62 

74 

196 

332 

Delaware, 

17 

7 

3 

27 

District  of  Columbia, 

8 

2 

1 1 

21 

Florida, 

II 

4 

27 

42 

Georgia, 

21 

31 

71 

123 

Idaho, 

6 

3 

16 

25 

Illinois,  ------ 

,78 

31 

441 

650 

Indiana, 

93 

28 

156 

277 

Iowa,      ------ 

129 

126 

423 

678 

Kansas, 

149 

248 

36s 

762 

Kentucky,       -         .         -         -         - 

68 

84 

36 

188 

Louisiana, 

13 

8 

14 

35 

Maine,    ------ 

75 

6 

54 

12 

147 

Maryland, 

48 

28 

19 

95 

Massachusetts,        -         -         -         - 

252 

21 

169 

74 

S16 

Michigan,  -         -         -         -         - 

109 

71 

220 

400 

Minnesota, 

57 

74 

152 

283 

Mississippi,          .         .         -         - 

12 

13 

15 

40 

Missouri, 

48 

231 

122 

401 

Montana,   -         -         -         - 

17 

5 

1 1 

33 

Nebraska, 

104 

158 

306 

568 

Nevada,      -         -         -         -         - 

2 

3 

10 

15 

New  Hampshire,     -         -         -         - 

49 

4 

68 

3 

124 

New  Jersey, 

81 

16 

26 

6 

129 

New  Mexico,           -         .         -         - 

9 

4 

10 

23 

New  York  State  (city  excepted),  - 

278 

83 

95 

179 

635 

New  York  City,  -         -         -         - 

46 

61 

23 

77 

207 

North  Carolina,      -         -         -         - 

19 

10 

23 

52 

Ohio, 

220 

60 

250 

530 

Oregon,  ------ 

23 

9 

21 

53 

Pennsylvania,      .         -         -         - 

306 

116 

243 

665 

Rhode  Island,          -         -         -         - 

61 

12 

32 

7 

112 

South  Carolina,  -         -         -         - 

16 

19 

22 

57 

Tennessee,      -         -         -         -         - 

40 

43 

20 

103 

Texas, 

93 

13 

130 

236 

Utah, 

7 

2 

8 

17 

Vermont,     -         -         -         -         - 

49 

3 

27 

2 

81 

Virginia, 

25 

57 

30 

112 

Washington  Territory, 

21 

4 

14 

39 

West  Virginia,         -         .         -         - 

20 

26 

3 

49 

Wisconsin,      .     -         -         "         " 

57 

57 

102 

216 

Wyoming,        ....         - 

8 

I 

12 

21 

Totals,    -      -         -          -     ■    - 

3,086 

2,024 

607 

4.075 

9>792 

*  These  are  savings  banks  proper,  organized  for  the  benefit  of  depositors.     In  other  States  it  is 
impossible  to  separate  them  from  Inose  benefiting  stockholders, 
t  Brokers  are  not  included  in  this  list.  , 

■S7 


^ 


i88 

It  is  quite  unnecessary  to  point  out  that  some  radical 
chang^es  must  soon  be  made  in  the  National  Bank  Act  if 
National  banks  are  to  be  allowed  to  continue  in  business. 
The  rapid  payment  on  maturity  of  the  Government  bonds, 
.which  the  present  law  requires  National  banks  to  deposit 
with  the  Government  as  security  for  their  circulation,  and 
the  carrying  out  of  the  policy  of  President  Cleveland's 
administration  in  reducing  the  surplus  in  the  Treasury  by 
purchasing  bonds  before  they  mature,  will  soon  diminish 
the  Government  bonds  outstanding  to  such  an  extent  that 
banks  will  be  unable  to  secure  their  circulation  with  them. 

The  early  approach  of  this  condition  of  affairs  has 
caused  the  preparation  by  the  Comptroller  of  the  Cur- 
rency, W.  L.  Trenholm,  of  a  bill  for  "An  Act  Relating  to 
National  Banking  Associations."  This  proposed  bill  is 
printed  in  the  Report  of  the  Comptroller  for  1887,  and 
is  a  very  voluminous  document.  If  it  becomes  a  law  it 
will  form  a  complete  National  banking  code. 

A  careful  examination  of  the  plans  submitted  to  the 
Comptroller  of  the  Currency  as  solutions  of  the  future  of 
National  banks  has  suggested  to  Comptroller  Trenholm 
these  three  propositions  as  the  only  measures  within  the 
probability  of  adoption: 

First:  To  increase  the  inducements  for  the  banks  to 
deposit  United  States  bonds  as  a  basis  of  National  bank 
circulation. 

Second:  To  provide  by  a  new  issue  of  bonds  for  a 
continuance  of  the  present  or  some  modified  system  of 
National  bank  circulation  based  on  United  States  bonds. 

Third:  To  allow  the  banks  to  issue  circulation  upon 
their  general  credit  without  requiring  specific  security  to 
be  deposited. 


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